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Financial Accounting: Principles and Concepts - Exercises and Questions, Study notes of Accounting

Far Eastern University (FEU)Accounting

A series of exercises and questions related to fundamental financial accounting principles and concepts. It covers topics such as qualitative characteristics of financial statements, measurement attributes, recognition criteria, and the statement of financial position. Valuable for students seeking to test their understanding of key accounting concepts and apply them to practical scenarios.

Typology: Study notes

2023/2024

Uploaded on 04/02/2025

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Financial Statement Presentation
1. Which statement is NOT TRUE about materiality?
● An item is material if the inclusion or omission would influence the judgment or a
primary user.
● Materiality is a matter of relative size or importance.
● The relevance of information is not affected by its nature and materiality.
● An item must make a difference or it need not be disclosed.
- All other statements are true about materiality.
2. The consistency standard requires that…
● The effect of the accounting changes upon income should be properly disclosed.
3. The economic substance of a transaction shall prevail over the legal form…
● Substance over form
4. What are qualitative characteristics of financial statements?
● They are attributes that make the information provided in the financial statements
useful to users.
5. The overriding qualitative characteristic of accounting information is…
● Decision usefulness
6. Verifiability implies..
● Consensus
7. When an entity starts placing its quarterly financial statements on its web page, thereby
reducing by ten days the time to get information to investors and creditors, the qualitative
concept involved is…
● Timeliness
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Download Financial Accounting: Principles and Concepts - Exercises and Questions and more Study notes Accounting in PDF only on Docsity!

Financial Statement Presentation

  1. Which statement is NOT TRUE about materiality? ● An item is material if the inclusion or omission would influence the judgment or a primary user. ● Materiality is a matter of relative size or importance. ● The relevance of information is not affected by its nature and materiality. ● An item must make a difference or it need not be disclosed. - All other statements are true about materiality.
  2. The consistency standard requires that… ● The effect of the accounting changes upon income should be properly disclosed.
  3. The economic substance of a transaction shall prevail over the legal form… ● Substance over form
  4. What are qualitative characteristics of financial statements? ● They are attributes that make the information provided in the financial statements useful to users.
  5. The overriding qualitative characteristic of accounting information is… ● Decision usefulness
  6. Verifiability implies.. ● Consensus
  7. When an entity starts placing its quarterly financial statements on its web page, thereby reducing by ten days the time to get information to investors and creditors, the qualitative concept involved is… ● Timeliness
  • Timeliness is a qualitative characteristic. It involves providing information within the decision time frame.
  1. When an entity changes the inventory valuation method, which characteristic is jeopardized by this change? ● Consistency
  • Consistency is a general feature of a financial statement. It refers to the use of the same methods for the same items over time.
  1. Recognizing expected loss immediately but deferring expected gain is an example of: ● Conservatism
  • Is a set of financial reporting guidelines that require accountants to be cautious and exercise a high degree of verification.
  1. A reporting entity is… ● An entity that is required or chooses to prepare financial statements, and it is not necessarily a legal entity.
  2. These contain information in addition to those presented in the statement of financial position, statement of comprehensive income, separate income statement, statement of changes in equity and statement of cash flows. They provide narrative description and disaggregation of items presented in those statements. ● Disclosures, accounting policies, and notes.
  3. This comprises items of income and expense (including reclassification adjustments) that are not recognized in profit or loss as required or permitted by IFRS. ● Other comprehensive income
  4. The components of other comprehensive income includes: ● Changes in revaluation surplus ● Actuarial gains and losses on defined benefit plans ● Gains and losses arising from translating the financial statements of a foreign operation
  • The director’s subscription is not a line item typically presented on the face of the income statement.
  1. Additional line items, headings and subtotals shall be presented on the face of the total comprehensive income when such presentation is relevant to an understanding of the entity’s financial performance except: ● Profit or loss attributable to equity holders of the parent ● Extraordinary Items ● Profit and loss attributable to minority interest
  • Extraordinary items are no longer recognized under current accounting standards. Therefore, they cannot be presented as a separate line item in the statement of comprehensive income.

Financial statement presentation and Income statement

  1. The measurement bases include: ● Historical Cost and Current value - Historical Cost. The historical cost of an asset is the consideration paid to acquire the asset plus transaction costs. - Current Value. It measures reflect changes in values at the measurement date. Current value measurement includes fair value, value in use and fulfillment value, and current cost.
  2. Which measurement attribute is not currently used? ● Fair Value ● Present value ● Inflation adjusted cost ● Current cost - It is not a widely used measurement in current accounting standards. The other options are commonly used in various accounting standards.
  3. Which term best describes the amount that represents the immediate purchase cost of an asset? ● Present Value
  4. This is used as a measure of performance or as the basis for other measures, such as return on investment or earning per share.

● Profit

  1. As defined in the PFRS, it refers to increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that results in increases in equity, other than those relating to contributions from equity participants. ● Income
  2. This refers to decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. ● Expense
  3. It arises in the course of the ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent. ● Revenue
  4. A concept of capital where capital is regarded as the productive capacity of the entity based on units of output per day. ● Physical concept of capital - This concept focuses on the entity’s capacity to produce goods or services. It is a tangible measure of the entity’s productive capability.
  5. The framework defines recognition of a financial element when the following conditions are met: ● When it is probable that any future economic benefit associated with the item will flow to or from the entity. ● The item has a cost or value that can be measured reliably. - Both of these are correct.
  6. The total of income less expenses, excluding the components of other comprehensive income is called.. ● Net Income or Loss
  7. An entity shall retain the presentation and classification of items in the financial statements from one period to the next. This is referred to as… ● Consistency
  8. Financial statements shall be presented at least.. ● Annually
  9. The elements directly related to the measurement of financial performance are.. ● Revenue and Expense
  1. Which concept is applied to net income and other comprehensive income? ● Financial Capital
  2. An entity shall clearly identify each financial statement and display all of the following except: ● Names of the shareholders - This information is not typically disclosed in the financial statements.
  3. An entity is permitted to depart from a particular standard if all conditions are satisfied, except: ● When the conceptual framework for financial reporting prohibits such departure ● In extremely rare circumstances ● When the departure from the standard is necessary to achieve fair presentation. ● When the management concludes that compliance with the standard would be misleading
  4. Items of dissimilar nature or function… ● Must be presented separately if material.

Inventories

  1. Which of the following items should be excluded from a company’s inventory at the balance sheet date? ● Goods out on consignment ● Goods held by customers on approval or on trial ● Goods lost while in transit, which were purchased FOB shipping point ● Goods sold FOB destination
  2. The cost of inventories shall compromise all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. Which of the following costs shall be included in the cost of inventories? ● Import duties and other taxes, transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services
  3. Net realizable value of inventories may fall below cost for a number of reasons including: I. Product obsolescence II. Physical deterioration of inventories

III. An increase in the expected replacement costs of the inventory IV. An increase in the estimated costs of completion ● Answer is I, II, and IV only.

  1. If the selling price of inventory that has been written down to net realizable value in a prior period, subsequently recovers, the: ● Previous amount of the write-down can be reversed
  2. The costs of conversion of inventories include all of the following except: ● Labor ● Overhead ● Direct Materials ● Labor and overhead

CFAS Reviewer 1

  1. The PFRS financial statements are prepared and presented at least annually and are directed toward the common information needs of a wide range of users ● This statement is true
  2. The underlying assumptions of financial statement: ● Economic entity ● Going Concern ● Monetary Unit ● Time Period ● Accrual basis
  3. Which of the following is not a qualitative characteristic? ● Relevance ● Materiality ● Comparability ● Understandability - Materiality is not a qualitative characteristic. It is a concept related to a qualitative characteristic called Relevance.
  1. Who is responsible for an entity’s financial statements? ● The Management
  • The responsibility encompasses:
  • The preparation and fair presentation of financial statements
  • Internal control over financial reporting
  • Going concern assessment
  • Oversight over the financial reporting process
  • Review and Approval of financial statements
  1. IAS 1 does not prescribe the format of the statement of financial position.
  2. General Features of the Financial Statements ● Fair presentation and Compliance with the PFRSs ● Going Concern ● Accrual basis ● Consistency of presentation ● Materiality and Aggregation ● Offsetting ● Comparative Information ● Frequency of Reporting
  3. Are presented in a systematic manner and cross-referenced from the face of the financial statement to the relevant note.. ● Notes
  4. Is defined as the total of income less expenses, excluding the components of other comprehensive income. ● Profit or Loss
  5. Is defined as comprising items of income and expense, including reclassification adjustments, that are not recognized in profit or loss as required or permitted by the PFRSs. ● Other comprehensive income
  6. According to PAS 1-Presentation of Financial Statements, assessments of going concern should cover at least how many months from the reporting date? ● 12 months
  7. In a classified statement of financial position, deferred tax assets and deferred tax liabilities are presented as non-current items
  8. Are amounts reclassified from OCI to profit or loss.

● Reclassification adjustments

  1. Presenting extraordinary items in the financial statements, including the notes, is prohibited.
  2. Dividends are disclosed either in the statement of changes in equity or in the notes.
  3. The notes is an integral part of the financial statements.
  4. The statement of financial position may be presented either showing current/non-current distinction ( classified ) or based on liquidity ( unclassified ).
  5. PAS 1 encourages the classified presentation.
  6. The steps in accounting: ● Recognition ● Measurement ● Derecognition
  7. Permanent. Shows on-going business process. (As of) Nominal. Temporary. (For the period ended)
  8. 3 Types of standard in the Philippines ● Full PFRS ● PFRS for SME ● PFRS for SEC
  9. Accounting is conceptual and is concerned with the “why” reason or justification for any action adopted.
  10. Bookkeeping is procedural and largely concerned with development and maintenance of accounting records. The “how” of accounting.
  11. Auditing is analytical. The work of an auditor begins when the work of the accountant ends.
  12. Financial accounting is primarily concerned with the recording of business transactions and the eventual preparation of financial statements.
  13. Managerial accounting is the area of accounting that emphasizes developing accounting information for use within an entity.
  14. Generally Accepted Accounting Principles represent rules, procedures, practice and standards followed in the preparation and presentation of financial statements.
  15. Continuing professional Development or CDP refers to the inoculation and acquisition of advanced knowledge, skill, proficiency and ethical and moral values after
  • Administers the provisions of the National Internal Revenue Code. 8. Bangko Sentral ng Pilipinas
  • Influences the selection and application of accounting policies by banks and other entities performing banking functions. 9. Cooperative Development Authority (CDA)
  • Influences the selection and application of accounting policies by cooperatives.