BASIC FEATURES OF FINANCIAL STATEMENTS, AND

STATEMENT OF COMPREHENSIVE INCOME

THEORIES

1. Which of the following statements are correct concerning fair presentation of financial statements?
I. In virtually all circumstances, fair presentation is achieved by compliance with applicable Philippine
Financial Reporting Standards.
II. Financial statements shall present fairly the financial position, performance and cash flows of an
enterprise.
III. An enterprise whose financial statements comply with PFRS shall make an explicit and unreserved
statement of such compliance in the notes.
IV. Inappropriate accounting treatments are rectified either by disclosure of the accounting policies used
or by note or explanatory material.
A. I, II, III & IV B. II, III & IV C. I, II & IV D. I, II & III

2. Which basic feature is applied when immaterial amounts of similar nature and function are grouped or
condensed as one line item in the financial statements?
A. aggregation B. accounting policy C. offsetting D. comparability

3. Which of the following is an example of offsetting?

A. the allowance for doubtful accounts is deducted from accounts receivable.
B. the accumulated depreciation is deducted from property, plant and equipment.
C. the total liabilities are deducted from total assets to at net assets.
D. gains and losses from disposal of noncurrent assets are reported by deducting the proceeds from
the carrying amount of the assets and the related selling cost.

4. Which of the following will result to a fair presentation of financial information?

I. Selecting and applying accounting policies in accordance with IFRS.
II. Presenting information including accounting policies, in a manner that provides relevant and faithfully
represented financial information.
III. Providing additional disclosures when specific requirements of IFRS is insufficient to enable users to
understand the impact of particular transactions on the entity’s financial position and financial
performance.
IV. Disclosing inappropriate accounting policies used either by notes or explanatory material without
rectification.
A. III & IV B. I & II C. I, II & IV D. I, II & III

5. Which statements are correct concerning the general features in the presentation of financial statements?
I. An entity shall prepare its financial statements except for cash flow information under the accrual basis
of accounting.
II. The presentation and classification of items in the financial statements shall be retained from on period
to the next.
III. Assets and liabilities, income and expenses, shall not be offset unless required or permitted by another
IFRS.
IV. Comparative information need not be disclosed in respect of the previous period for all numerical
information in the financial statements.
A. I, II, III & IV B. II, III & IV C. I & IV D. I, II & III

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

A. Materiality depends on the size and nature of the item judged in the particular circumstances of
its omission or misstatement.
B. Specific disclosure requirements of an IFRS must be met even if the resulting information is
not material.
C. Items of a dissimilar nature or function shall be presented separately unless they are immaterial.
D. Information is material if its nondisclosure could influence the economic decisions of users
taken on the basis of the financial statements.

7. Which feature is applied when the effects of transaction and other events are recognized when they
occur and they are recorded in the accounting records and reported in the financial statements of the
periods to which they relate?

Updates in Financial Reporting Standards 1- NAB

 BASIC FEATURES OF FINANCIAL STATEMENTS, AND
STATEMENT OF COMPREHENSIVE INCOME

A. Going concern B. Entity concept C. Time period D. Accrual basis

8. Which statement is incorrect concerning the “line items” on the face of the statement of financial
position?
A. As a minimum, IAS 1 requires that the face of the statements of financial position shall include
certain line items.
B. Additional line items, heading and subtotals shall be presented on the face of the statement of
financial position when such presentation is relevant to the understanding of the entity’s financial
position.
C. IAS 1 simply provides a list of items that are sufficiently different in nature or function to
warrant separate presentation on the face of the statement of financial position.
D. IAS 1 prescribes the order or format in which items are to be presented on the face of the statements of
financial position.

9. Which of the following are sources of revenue?

I. sale of goods III. allowing others to use the entity’s resources
II. rendering of services IV. borrowing from banks
A. I, II, III and IV B. I, II and III C. II, III and IV D. I and III

10. A contract of sale of goods is entered into April 1, 2023. Delivery of the goods is made on April 20,
2023. The buyer pays for the goods on May 15, 2023. The contract contains a clause that entitles the buyer
to return the goods up until June 15, 2023 if the goods do not perform according to their specifications.
Applying IFRS 15, state at which date will be recognized by the seller.
A. April 1, 2023 B. April 20, 2023 C. May 15, 2023 D. June 15, 2023

11. IFRS 15 requires an entity to allocate the transaction price to each performance obligation that has
been identified in the contract. In this step, an entity allocated the transaction price
A. equally to each performance obligation.
B. on discretionary basis to each performance obligation.
C. based on the proportion of the stand-alone selling price of the performance obligation.
D. solely to the most significant performance obligation.

12. Which of the following is not a line item on the face of the income statement using the function of
expense method.
A. revenue B. finance costs C. tax expense D. salaries and wages

13. Which of the following line items is normally shown in income statement presenting expenses by
function but nor in an income statement presenting expenses by nature?
A. gross profit C. income from operations
B. income from associates D. finance cost

14. Which of the following will not appear in the statement of changes in equity?
A. changes in depreciation method C. net loss
B. correction of prior period D. dividends

15. The operating expenses section of a statement of comprehensive income does not include
A. selling expenses B. admin expense C. interest expense D. loss on sale of securities

16. The best measure of a firm’s ongoing ability to generate cash flows in the future is
A. profit from continuing operations C. discontinued operations
B. profit before tax D. net profit

17. A discontinued operations is a component of an entity that either been disposed of, or is classified as
held for sale and
A. is not part of a single coordinated plan to dispose a major line of business or geographical area
of operations.
B. represents a separate major line of business or geographical area of operations.
C. is discontinuing several products within an ongoing line of business.

Updates in Financial Reporting Standards 2- NAB

 BASIC FEATURES OF FINANCIAL STATEMENTS, AND
STATEMENT OF COMPREHENSIVE INCOME

D. is a subsidiary whose activities are similar to those of the parents and other subsidiaries

18. A change in accounting policy should be made if

A. required by law.
B. required by the accounting standards.
C. the change will result in more appropriate presentation of events and transactions.
D. required by shareholders.

19. #NABergonia is an entity which manufactures ships based on customer’s specifications. A ship may
take two or three years to complete. Based on the signed contracts with the customers, #NABergonia has
an enforceable right to payment based on stage of completion. Under IFRS 15, the company shall
recognize revenue
A. at the date the contract is signed.
B. at the completion of the manufacturing of the ship.
C. over the period of cash collection, based on cash collection.
D. over the period of completion, based on stage of completion.

20. Which of the following approaches to income measurement underlies financial accounting and
reporting?
A. Transaction approach C. Valuation approach
B. Economic approach D. Physical capital maintenance approach

PROBLEMS

21. Jollibee Company keeps limited records. Its assets and liabilities at the beginning and end of the
current year are as follows:
Beginning End
Cash in bank P30,000 P(5,000)
Accounts receivable 50,000 70,000
Merchandise inventory 100,000 80,000
Accounts payable 40,000 20,000
Notes payable-bank 20,000 25,000
Office equipment (net) 80,000 60,000
During the year, the owner withdraw cash of P12,000 and made additional investments of P50,000. The
profit (loss) of Jollibee Company for the year is
A. P8,000 B. P(2,000) C. P(68,000) D. P(78,000)

22. The net sales of McDo Mfg. Company in 2023 is P5,800,000. The cost of goods manufactured is
P4,800,000. The beginning inventories of goods in process and finished goods are P820,000 and
P650,000, respectively. The ending inventories are: goods in process- P750,000; finished goods-
P550,000. The selling expenses and general administrative expenses are 5% and 2.5% of cost of sales,
respectively. What is McDo’s profit for the year 2023?
A. P457,250 B. P532,500 C. P830,000 D. P900,000

23. The following items were reported on KFC Company’s statement of comprehensive income for the
year ended December 31, 2023: Legal and audit fees- P170,000; Rent expense- P240,000; Interest
expense- P210,000; Loss on sale of equipment- P35,000. The office space is used equally by KFC’s sales
and accounting departments. What amount of the above-listed items should be classified as general and
administrative expenses?
A. P290,000 B. P325,000 C. P410,000 D. P500,000

24. Chowking Company separates operating expenses in two categories; selling and general and
administrative expenses. The adjusted trial balance at December 31, 2022, included the following
expenses and loss accounts:
Interest P1,400,000
Accounting audit fees 500,000
Advertising 800,000

Updates in Financial Reporting Standards 3- NAB

 BASIC FEATURES OF FINANCIAL STATEMENTS, AND
STATEMENT OF COMPREHENSIVE INCOME

Freight-out 1,600,000
Product development 350,000
Loss on sale of long-term investment 100,000
Officer’s salaries 900,000
Depreciation on delivery equipment 400,000
Rent for office space 1,200,000
Sales salaries and commissions 750,000
One-half of the rented premises is occupied by the sales department. The entity’s total selling expenses
for 2022 is:
A. P5,100,000 B. P4,750,000 C. P4,150,000 D. P3,950,000

25. The following information is given for Tokyp-Tokyo Company: Freight-in – P8,000; Purchase returns
– P12,000; Selling expenses - P600,000; Ending inventory – P320,000. The cost of goods sold equal
to 800% of selling expenses. What is the cost of goods sold?
A. P4,800,000 B. P4,820,000 C. P5,100,000 D. P5,120,000

Data for 26 and 27

Greenwich Corp. disposed of Segment X, a microchip division during 2023. The segment met the criteria
to be classified as “Held for Sale” on July 1, 2023. Segment X’s revenue from January 1 to June 30
amounted to P2,000,000 and from July 1 to November 30 (the actual disposal date) amounted P100,000.
Selling and administrative expenses from January 1 to June 30 and from July 1 to November 30 were
P1,800,000 and P300,000 respectively. Net proceeds from sale of the segment on November 30, 2023
were P15,000,000 at which the segment’s carrying value was P14,000,000. The company’s income tax is
30%. The company presents on the face of the statement of comprehensive income a single-line item for
discontinued operations.

26. How much is the profit (loss) from the operations of the discontinued operations?
A. P(200,000) B. P-0- C. P140,000 D. P200,000

27. How much is presented as “Discontinued Operations” on the face of the statement of
comprehensive income?
A. P700,000 B. P840,000 C. P1,000,000 D. P1,200,000

Data for 28 and 29

The following pre-tax amounts pertain to Zarks Burger Corp. for the year ended December 31, 2023:
Sales P 400,000
Selling and administrative expenses 84,000
Other income 40,000
Interest expense 4,000
Cost of goods sold 280,000
Correction of prior period error- credit 16,000
Discontinued operations- credit 40,000
Cumulative effect of change in accounting policy- debit 24,000
Retained earnings, January 1, 2023 (not restated) 1,600,000
Dividends declared 12,000
Income tax rate 30%

28. What is the company’s profit for the year ended December 31, 2023?
A. P50,400 B. P61,600 C. P72,000 D. P78,400

29. How much retained earnings would be shown on December 31, 2023?
A. P1,616,000 B. P1,660,800 C. P1,664,400 D. P1,670,400

30. Star Fruit Company reported the following data for the 2023:
Net sales P9,500,000
Cost of goods sold 4,000,000
Distribution costs 1,000,000

Updates in Financial Reporting Standards 4- NAB

 BASIC FEATURES OF FINANCIAL STATEMENTS, AND
STATEMENT OF COMPREHENSIVE INCOME

Administrative expenses 1,200,000

Interest expense 700,000
Gain from sale of land 500,000
Income tax expense 800,000
Income from discontinued operations- net of tax 600,000
Unrealized gain on equity investment at FV through OCI- net of tax 1,300,000
Actuarial loss during the year fully recognized- net of tax 300,000
a. How much is the profit to be reported during the year? ___________________
b. How much is the total other comprehensive income? ____________________
c. How much is the total comprehensive income? ______________________

/NABergonia2024

Updates in Financial Reporting Standards 5- NAB