IA3 REVIEW ON NOTES TO FS

1. Which is not a purpose of the notes to financial statements?

a.To present information about the basis of preparation of the financial
statements and the specific accounting policies used.
b. To disclose the information required by Philippine Financial Reporting
Standards that is not presented elsewhere in the financial statements.
c. To provide additional information which is not presented on the face of the
financial statements but that is necessary for a fair presentation.
d. To provide information about the financial position, financial performance and
cash flows of an entity that is useful to a wide range of users in making economic
decisions. D

2. Notes to financial statements are beneficial in meeting the disclosure of

financial reporting. The notes of financial statements should not be used to
a. Describe significant accounting policies.
b. Describe depreciation methods employed by the entity.
c. Describe the principles and methods peculiar to the industry in which the entity
operates when these principles and methods are predominantly followed in that
industry. d. Correct an improper presentation in the financial statements d

3. Indicate the proper order of presenting the notes to financial statements.

I. Statement of compliance with PFRS
II. Other disclosures, such as contingent liabilities, unrecognized contractual
commitments and nonfinancial disclosures.
III. Supporting information for items presented on the face of the financial
statements. IV. Summary of significant accounting policies.
a. I,II,III and IV b. I,IV, III and II c. I,III,IV and II d. I,IV,II and III b

4. An entity is required to disclose certain nonfinancial information. Which is

not embraced in this disclosure?
a. A description of the nature of the entity's operations and its principal activities
b. The name of the parent entity and the ultimate parent of the group
c. Domicile and legal form of the entity, its country of incorporation and address
of the registered office.
d. Names and addresses of the corporate directors and officers. D

5. An entity shall disclose in the notes to financial statements

 I. The amount of dividends proposed or declared before the financial statements
are authorized for issue but not recognized as distribution during the period and
the related amount per share.
II. The amount of any cumulative preference dividends not recognized. a. I only
b. II only c. Both I and II d. Neither I nor II c

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

7. The presentation of the notes to financial statements in a systematic

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

8. 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 the 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 the financial statements. C

9. Disclosure of information about key sources of estimation uncertainty

a. Is voluntary
b. Is mandatory
C. Is either voluntary or mandatory
d. Depends on the industry b

10. Disclosure of information about judgments, apart from those involving

estimations, that management has made in the process of applying the
 accounting policies and that have the most significant effect on the
amounts recognized in the financial statements
a. Is voluntary
b. Is mandatory
C. Is either voluntary or mandatory
d. Depends on the industry b

11. What is the purpose of information presented in the notes to financial

statements?
a. To provide disclosures required by generally accepted accounting principles
b. To correct improper presentation in the financial statements.
C. To provide recognition of amounts not included in the total of the financial
statements.
d. To present management's responses to auditor comments. A

12. Which of the following information shall be disclosed in the summary of

significant accounting policies?
a. Refinancing of debt subsequent to the reporting period
b. Guarantees of indebtedness of others
c. Criteria for determining which investments are treated as cash equivalents
d. Adequacy of pension plan assets relative to vested benefits c

13. The summary of significant accounting policies shall disclose

a. The composition of property, plant and equipment and the depreciation
method used
b. The composition of property, plant and equipment only
c. The depreciation method used only
d. Neither the composition of property, plant and equipment and the depreciation
method used c

14. Financial statements shall include disclosure of material transactions

between related parties, except
a. Nonmonetary exchange by affiliates
b. Sales of inventory by a subsidiary to the parent when consolidated financial
statements are prepared.
c. Expense allowance for executives which exceed normal business practice
d. An entity's agreement to act as surety for a loan to the chief executive officer
b PAS 24 does not require disclosure of transactions which are eliminated
in the preparation of consolidated financial statements
15. During the current year, an entity engaged in the following transactions:
I. Payment of key management personnel compensation
II. Sales to affiliated entities Which of the two transactions should be
disclosed as related party transactions in the entity's separate financial
statements for the current year?
a. Neither I nor II b. I only c. II only d. Both I and II d PAS 24 specifically
requires disclosure of key management personnel compensation and
transactions between affiliates when preparing separate financial statements.

16. Which of the following statements is incorrect regarding notes to financial

statements?
a. PFRS requires specific note disclosures including disaggregation of
inventories into classifications such as merchandise, production supplies, work in
process, and finished goods.
b. PFRS requires a maturity analysis for receivables.
c. PFRS requires that all notes be clear, simple to understand and nontechnical
in nature.
d. All of the choices are correct regarding notes to financial statements. C

17. The disclosure of accounting policies is important to financial statement

users in determining
a. Net income for the year.
b. Whether accounting policies are consistently applied from year to year.
c. The value of obsolete items included in ending inventory.
d. Whether the working capital position is adequate for future operations. B

18. Accounting policies disclosed in the notes to financial statements typically

include all of the following, except
a. The cost flow assumption used
b. The depreciation method used
c. Significant estimates made
d Significant inventory purchasing policies d

19. Significant accounting policies may not be

a. Selected on the basis of judgment
b. Selected from existing acceptable alternatives
c. Unusual or innovative in application
d. Omitted from financial statement disclosure d
20. Which of the following is not commonly a required disclosure of
accounting policies?
a. The measurement basis used in the financial statements
b. Personnel involved in drafting the summary of significant accounting policies,
including those who made the judgment apart from those involving estimations
c. Disclosures required by other PFRS, like the reason why the entity's ownership
interest does not constitute control
d. The nature of an entity's operations and the policies that the users of the
financial statements would expect to be disclosed for that type of entity b

21. An example of an inventory accounting policy that should be disclosed in a

summary of significant accounting policies is the
a. Composition of inventory into raw materials, work in process and finished
goods
b Major backlogs of inventory orders
c. Method used for pricing inventory
d. All of the these should be disclosed in the summary of significant accounting
policies c

22. Which of the following should be defined as intentional distortion of a

financial statement?
a. Error b. Fraud c. Error and fraud d. Neither error nor fraud b

23. Typical contractual situations that are disclosed in the notes to the
statement of financial position include all of the following, except
a. Debt covenants b. Lease obligations c. Advertising contracts d. Pension
obligations c

24. Which of the following is not a required supplemental disclosure for the
statement of financial position?
a. Contingency b. Financial forecast c. Accounting policy d. Contractual situation
b

25. The full disclosure principle is best described by which of the following?
a. All information related to an entity's operating objectives must be disclosed in
the financial statements.
b. Information about each account balance appearing in the financial statements
is to be included in the notes of financial statements.
c. Enough information should be disclosed in the financial statements so a
person wishing to invest in the entity can make a wise decision.
 d. Disclosure of any financial facts significant enough to influence the judgment
of an informed reader. D

EVENTS AFTER THE REPORTING PERIOD

26. The financial statements are authorized for issue

a. When the board of directors reviews the financial statements and authorizes
them for issue.
b. When the financial statements are made available to shareholders.
c. When the shareholders approve the financial statements at their annual
meeting.
d. When the approved financial statements are filed with a regulatory body. A

27. Adjusting events after reporting period include all of the following, except
a. The settlement of a court case after the issuance of the financial statements
that confirms that the entity has a present obligation.
b. Bankruptcy of a customer occurring between the end of the reporting period
and date of issuance of financial statements.
c. Determination after reporting period and before the issuance of the statements
of the cost of asset purchased before the end of the reporting period.
d. The discovery of fraud or errors between the end of the reporting period and
the date of issuance of financial statements. A

28. Which of the following events after the reporting period Would require
adjustment of the accounts before issuance of the financial statements?
a. Loss of plant as a result of fire
b. Change in the quoted market price of financial asset held as an investment
c. Loss on an uncollectible account receivable resulting from a customer's major
flood loss
d. Loss on a lawsuit the outcome of which was deemed uncertain at year-end. D

29. Nonadjusting events after reporting period that generally result in

disclosure include all of the following, except
a. A major business combination after reporting period
b. Announcing a plan to discontinue an operation
c. Major purchase of asset or expropriation of major asset after reporting period
d. Destruction of a major production plant by a fire before the end of the reporting
period d
30. Which of the following events after the reporting period would generally
require disclosure in the financial statements?
a. Retirement of the entity president
b. Settlement of litigation when the event that gave rise to the litigation occurred
prior to the statement of financial position date
c. Strike of employees
d. Issue of a large amount of ordinary shares d

31. Events after the end of 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 annual financial statements. C

32. 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 of conditions that existed after the date the financial statements were
authorized for issue. A

33. When after the end of reporting period an event occurs that is indicative of
conditions that arose after the end of reporting period I. The entity shall
disclose the nature and effect of the event in the financial statements. II.
The entity shall adjust the related amounts recognized in the financial
statements.
a. I only b. II only c. Both I and II d. Neither I nor II a

34. The factory and several items of equipment were damaged in an

earthquake after the end of reporting period but before issuance of
financial statements. What is the treatment of the quake damage?
a. An adjusting event
b. A nonadjusting event
c. Neither an adjusting event nor a nonadjusting event
d. Both an adjusting event and a nonadjusting event b
35. Events that occur after the current year-end but before the financial
statements are issued and provide additional evidence about conditions
that existed at the current year-end and affect the realizability of accounts
receivable should be
a. Discussed only in the management commentary of the annual report
b. Disclosed only in the notes to the financial statements.
c. Used to record an adjustment to bad debt expense for the year.
d. Used to record an adjustment directly to retained earnings. C

36. An entity's financial statements for the year ended April 30, 2013 were
approved by the finance director on July7, 2013 and a public
announcement of the profit for the year was made on July 10, 2013. The
board of directors authorized the financial statements for issue on July 15,
2013 and the financial statements were approved by the shareholders on
July 20, 2013. After what date should consideration no longer-be given as
to whether the financial statements on April 30, 2013 need to reflect
adjusting and nonadjusting events?
a. July 7, 2013 b. July 10, 2013 c. July 15, 2013 d. July 20, 2013 c

37. Which of the following statements is true in relation to events after the
reporting period?
I Notes to financial statements shall give details of all material adjusting
events included in those financial statements.
II. Notes to financial statements shall give details of material nonadjusting
events which could influence the economic decisions of users.
a. I only b. II only c. Both I and II d. Neither I nor II b

38. Which of the following statements is true in relation to events after

reporting period?
I. A decline in the market value of investments should normally be
classified as an adjusting event.
II The settlement of a long-running court case should normally be classified
as a nonadjusting event.
a. I only b. II only c. Both I and II d. Neither I nor II d

39. All of the following events would be classified as nonadjusting events after
reporting period, except
a. The entity announced the discontinuance of the assembly operation
b. The entity entered into an agreement to purchase the freehold of the currently
leased office building
 c. A Destruction of a major production plant by fire
d. A mistake was discovered in the calculation of the allowance for uncollectible
accounts receivable d

40. An entity is preparing the financial statements for the year ended June 30,
2013. The board of directors reviewed the final draft financial statements
and authorized them for issue on August 15, 2013. The earnings figure and
key data are issued to the public on September 15, 2013. The financial
statements are issued to shareholders on October 15, 2013 and approved
by shareholders on October 31, 2013. The period in respect of which the
entity would consider events after the end of reporting period is from June
30, 2013 to
a. August 15, 2013 b. September 15, 2013 c. October 15, 2013 d. October 31,
2013 a

41. An entity decided to build and operate a new amusement park next year.
The entity has applied for a letter of guarantee for an amount equal to the
cost of the amusement park. The letter of guarantee was issued before the
issuance of the financial statements of current year. What is the adjustment
required to be made at the current year-end?
a. Booking a long-term payable for the amount of the guarantee
b. Disclosing as a contingent liability in 2013 financial statement an amount equal
to the guarantee
c. Increasing the contingency reserve by an amount equal to the guarantee
d. Do nothing d

42. At the end of the current reporting period, an entity carried a receivable
from another entity, a major customer. The customer declared bankruptcy
after the end of reporting period but before the issuance of financial
statements. What should be reported at the current year-end?
a. Disclose the fact that the customer has declared bankruptcy in the notes.
b. Make a provision for this post-reporting period event in the financial
statements as opposed to disclosure in notes.
c. Ignore the event and wait for the outcome of the bankruptcy because the event
took place after the year-end.
d. Reverse the sale pertaining to this receivable in the comparative statement for
the prior period and treat this as an "error". B

43. An entity built a new factory building during the current year at a certain
cost. Subsequent to the current year-end and before the financial
 statements are issued, the building was destroyed by fire and the claim
against the insurance entity proved futile because the cause of the fire was
negligence on the part of the caretaker of the building. What should be
reported at the current year-end?
a. Write off the carrying amount of the building to scrap value because the
insurance claim would not fetch any compensation.
b. Make a provision for one-half of the carrying amount of the building.
c. Make a provision for three-fourths of the carrying amount of the building based
on prudence.
d. Disclose this nonadjusting event in the notes. D

44. An entity deals extensively with foreign entities and the financial
statements reflect these foreign currency transactions. Subsequent to the
reporting period and before the date of authorization of the issuance of the
financial statements, there were abnormal fluctuations in foreign currency
rates. What should be reported at the current year-end?
a. Adjust the foreign exchange year-end balances to reflect the abnormal
adverse fluctuations in foreign exchange rate.
b. Adjust the foreign exchange year-end balances to reflect all the abnormal
fluctuations in foreign exchange rates and not just adverse movements.
c. Disclose the post-reporting period event in the notes as a nonadjusting event.
d. Ignore the post-reporting period event. C

45. A development stage entity is defined as one devoting substantially all of

its efforts to establishing a new business and I. Planned operations have
not commenced. II. Planned principal operations have commenced but
there has been no significant revenue.
a. I only b. II only c. Both I and II d. Neither I nor II c

46. A development stage entity

a. Issues an income statement that shows only cumulative amounts from the
entity's inception
b. Issues an income statement that is the same as an established operating
entity, but does, not show cumulative amounts from the entity's inception as
additional information
c. Issues an income statement that is the same as an established operating
entity, and shows cumulative amounts from the entity's inception as additional
information
d. Does not issue an income statement c
47. Financial reporting by a development stage entity differs from financial
reporting for an established operating entity in regard to note disclosures
a. Only
b. And expense recognition principles only
c. And revenue recognition principles only
d. And revenue and expense recognition principles a

48. Deficits accumulated during the development stage of an entity should be

a. Reported as organization cost
b. Reported as part of shareholders' equity
c. Capitalized and written off in the first year of principal operations
d. Capitalized and amortized over a five-year period beginning when principal
operations commence b

49. A statement of cash flows for a development stage entity

a. Is the same as that of an established operating entity and, in addition, shows
cumulative amount from the entity’s inception.
b. Shows only cumulative amounts from the entity's inception
c. Is the same as that of an established operating entity, but does not show
cumulative amounts from the entity's inception
d. Is not presented