COLLEGE OF SCIENCE AND TECHNOLOGY
Cagamutan Norte, Leganes, Iloilo - 5003
Tel. # (033) 396-2291 ; Fax : (033) 5248081
Email Address : svcst_leganes@[Link]
COO – FORM 12
SUBJECT TITLE: AUDITING AND ASSURANCE: CONCEPTS AND APPLICATIONS 2
INSTRUCTOR: JESSA P. CASTELLANO, CPA
SUBJECT CODE: AUD2
MIDTERM MODULE
STATEMENT OF COMPREHENSIVE INCOME
1. It is the change in equity during a period resulting from transactions and other events, other than
changes resulting from transactions with owners in their capacity as owners.
A. Comprehensive income. C. Profit or loss.
B. Other comprehensive income. D. Retained earnings
2. It is the total of income less expenses, excluding the components of other comprehensive income.
A. Comprehensive income. C. Accounting income.
B. Profit or loss. D. Economic income.
3. This term comprises items of income and expense that are not recognized in profit or loss as required
or permitted by PFRS.
A. Comprehensive income. C. Profit or loss.
B. Other comprehensive income D. Retained earnings.
4. Comprehensive income includes
A. Profit or loss only
B. Other comprehensive income only
C. Both profit or loss and other comprehensive incomed.
D. Neither profit or loss nor other comprehensive income
5. Other comprehensive income includes all of the following except
A. Unrealized gain on available for sale financial asset
B. Loss from translating the financial statements of a foreign operation
C. Actuarial gain on defined benefit plan that is fully recognized
D. Share premium
6. An entity shall present all items of income and expense recognized in a period.
I. In a single statement of comprehensive income.
II. In two statements, one statement displaying the components of profit or loss, and the second
statement beginning with profit or loss and displaying components of other comprehensive income.
A. I only C. Either I or II
B. II only D. Both I or II
7. The expenses are classified according to their function, as part of cost of sales, distribution costs,
administrative activities and other operating activities.
A. Cost of sales method C. Account form
B. Nature of expense method D. Report form
COLLEGE OF SCIENCE AND TECHNOLOGY
Cagamutan Norte, Leganes, Iloilo - 5003
Tel. # (033) 396-2291 ; Fax : (033) 5248081
Email Address : svcst_leganes@[Link]
8. Conceptually, net income is a measure of
A. Wealth C. Capital maintenance
B. Change of wealth D. Cash flow
9. The transaction approach in determining income is a concept in which
A. Income is measured as the amount that an entity could consume during a period and be as well
off at the end of that period as it was at the beginning.
B. Market values adjusted for the effects of inflation or deflation are used to calculate income
C. The financial statement effects of business events are classified as revenue, gains, expenses and
losses, which are used to measure and define income.
D. Income equals the change in market value of the entity’s outstanding share capital for the period.
10. Information in the income statement helps users to
A. evaluate the past performance of the enterprise.
B. provide a basis for predicting future performance.
C. help assess the risk or uncertainty of achieving future cash flows
D. all of these.
11. Limitations of the income statement include all of the following except
A. items that cannot be measured reliably are not reported.
B. only actual amounts are reported in determining net income.
C. income measurement involves judgment.
D. income numbers are affected by the accounting methods employed.
12. The income statement reveals
A. resources and equities of a firm at a point in time.
B. resources and equities of a firm for a period of time.
C. net earnings (net income) of a firm at a point in time.
D. net earnings (net income) of a firm for a period of time.
13. The income statement information would help in which of the following tasks?
A. Evaluate the liquidity of a company. C. Estimate future cash flows.
B. Evaluate the solvency of a company. D. Estimate future financial flexibility.
14. The income statement provides investors and creditors information that helps them predict
A. the amounts of future cash flows. C. the uncertainty of future cash flows.
B. the timing of future cash flows. D. All of the above.
15. Investors and creditors use income statement information for each of the following except to
A. evaluate the future performance of the company.
B. provide a basis for predicting future performance.
C. help assess the risk and uncertainty of achieving future cash flows.
D. All of the above.
16. Which of the following is not a selling expense?
A. Advertising expense. C. Freight-out.
B. Office salaries expense. D. Store supplies consumed.
17. If a company prepares a consolidated income statement, PFRS requires that net income be reported
for
A. the majority interest only. C. both the majority interest and the minority interest.
B. the minority interest only. D. as a single amount only.
2
COLLEGE OF SCIENCE AND TECHNOLOGY
Cagamutan Norte, Leganes, Iloilo - 5003
Tel. # (033) 396-2291 ; Fax : (033) 5248081
Email Address : svcst_leganes@[Link]
18. Comprehensive income includes all of the following, except
A. revenues and gains. C. preference share dividends.
B. expenses and losses. D. unrealized gains and losses on available-for-sale securities.
19. Under PFRS other comprehensive income must be displayed (reported) in
A. the equity section of the statement of financial position.
B. a second income statement.
C. the income statement.
D. retained earnings the statement.
20. The definition of expenses include
A. Losses only
B. Expenses and losses
C. Expenses only
D. Expenses, losses, and unrealized losses on available for sale securities
21. An analysis of expenses is based on
A. The nature of expenses
B. The function of expenses
C. Either the nature of expense or the function of expenses, whichever provides information that is
reliable and more relevant.
D. Either the nature of expense or the function of expenses, whichever the entity would prefer to
present.
22. Line items in an analysis of expenses by nature include
A. Purchases, transport costs, employee benefits, depreciation, extraordinary items
B. Distribution costs and administrative costs
C. Depreciation, purchases, transport costs, employee benefits and advertising costs
D. Cost of goods sold, administrative and distribution costs
STATEMENT OF CHANGES IN EQUITY
23. In the statement of changes in equity, the effect of a change in accounting policy is presented.
a. Separately for each component of equity.
b. In aggregate for total equity.
c. In total for the amount attributable to owners of the parent and the non-controlling interest.
d. Separately for the total amount attributable to owners of parent and the non-controlling
interest
24. In the statement of change in equity, the effect of the correction of a prior period error is presented
a. Separately for each component of equity
b. In aggregate for total equity
c. In aggregate for total equity and separately for the total amount attributable to owners of the
parent and the non-controlling interest
d. Separately for the total amount attributable to owners of the parent and the non-controlling
interest
25. Which of the following does not appear in the statement of retained earnings?
a. Net loss
b. Prior period error
c. Preference share dividend
d. Other comprehensive income
3
COLLEGE OF SCIENCE AND TECHNOLOGY
Cagamutan Norte, Leganes, Iloilo - 5003
Tel. # (033) 396-2291 ; Fax : (033) 5248081
Email Address : svcst_leganes@[Link]
26. Which of the following would appear first in a statement of retained earnings?
a. Net income
b. Prior period error
c. Cash dividend
d. Share dividend
27. The statement of changes in equity includes a reconciliation between
a. The carrying amount of total equity at the beginning and the end of the period
b. The carrying amount of each component of equity at the beginning and the end of the period
separately disclosing changes resulting from profit or loss, each item of comprehensive
income, and the amount of investments by and dividends and other distributions to owners
c. Both “a” and “b”
d. Neither “a” nor “b”.
NONCURRENT ASSET HELD FOR SALE
28. 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.
29. An entity shall measure a noncurrent asset or disposal group classified as held for sale at
a. Carrying amount
b. Fair value less cost of disposal
c. Lower between carrying amount and fair value less cost of disposal
d. Higher between carrying amount and fair value less cost of disposal
30. How should the assets and liabilities of a disposal group classified as held for sale be shown in the
statement of financial position?
a. The assets and liabilities shall be offset and presented as single amount.
b. The assets of the disposal group shall be shown separately as current assets and the liabilities
of the disposal group shall be shown separately as current liabilities.
c. The assets and the liabilities shall be presented as a single amount as a deduction from the
equity.
d. There should be no separate disclosure of assets and liabilities that form part of a disposal.
31. What is the treatment of any gain on a subsequent increase in the fair value less cost of disposal of a
noncurrent asset classified as held for sale?
a. The gain should be recognized in full.
b. The gain shall not be recognized.
c. The gain shall be recognized but not in excess of the cumulative impairment loss previously
recognized.
d. The gain shall recognized but only in retained earnings.
4
COLLEGE OF SCIENCE AND TECHNOLOGY
Cagamutan Norte, Leganes, Iloilo - 5003
Tel. # (033) 396-2291 ; Fax : (033) 5248081
Email Address : svcst_leganes@[Link]
32. A noncurrent asset that is to be abandoned shall not be classified as held for sale because
a. The carrying amount will be recovered principally through continuing use.
b. The noncurrent asset is difficult to value
c. It is unlikely that the noncurrent asset will be sold within twelve months
d. It is unlikely that there will an active market for the noncurrent asset.
DISCONTINUED OPERATION
33. Which of the following criteria is not required for the results of a component of an entity to be classified
as discontinued operation?
a. Management must have entered into a sale agreement.
b. The component is available for immediate sale.
c. The operations and cash flows of the component shall be eliminated from the
operations of the entity as a result of the disposal.
d. The entity shall not have any significant continuing involvement in the operations
of the component after disposal.
34. Which of the following is a requirement for a component of an entity to be classified as a discontinued
operation?
a. The activities must cease permanently prior to the financial statements being authorized
for issue by management.
b. The component must be a reportable segment.
c. The assets must have been classified as held for sale in the previous financial
statements.
d. The component must have been a cash generating unit while being held for use.
35. Which should be considered as discontinued operation?
a. The operations and cash flows of a component have been or will be eliminated from the
ongoing operations of the entity as a result of a disposal transaction.
b. The entity continues to have a significant continuing involvement in the operations of
a component after the disposal transaction.
c. The entity outsources the manufacturing operations of a component and sells the
manufacturing facility of the component but continuous to sell the product previously
manufactured by the facility sold.
d. All of this should be considered as discontinued operation.
36. Which disposal could qualify as discontinued operation?
a. Disposal of a component that is similar in nature to other components but has operations
and cash flows distinguishable from the rest of the entity.
b. Disposal of a component due to major change in business strategy.
c. Disposal of a small component within the current business strategy.
d. Disposal of a component with distinguishable operations and cash flows from the rest
of the entity.
37. When an entity discontinued an operation and disposed of the discontinued operation, the
transaction should be reported in the income statement as
a. A prior period error
b. Other income and expense item
c. An amount after income from continuing operations and before net income
d. A bulk sale of assets included in income from continuing operations
5
COLLEGE OF SCIENCE AND TECHNOLOGY
Cagamutan Norte, Leganes, Iloilo - 5003
Tel. # (033) 396-2291 ; Fax : (033) 5248081
Email Address : svcst_leganes@[Link]
ACCOUNTING CHANGES
38. How should the effect of a change in accounting estimate be accounted for?
a. By restating amounts reported in prior periods
b. By reporting proforma amounts for prior for prior periods
c. As a prior period adjustment of retained earnings
d. In the period of change and future periods if the change affects both
39. A change in the residual value of an asset arising because additional information has been obtained
is
a. An accounting change reported in the period of change and future periods if the change
affects both
b. An accounting change that should be reported by restating the financial statements of all
prior periods presented
c. A correction of an error
d. Not an accounting change
40. The change in accounting policy inseparable from a change in accounting estimate should be
reported
a. By restating the financial statements of all prior periods
b. As a correction of an error
c. In the period of change and future periods if the change affects both
d. As a disclosure after income from continuing operations
41. Statement 1: The first step within the hierarchy of guidance when selecting accounting policies is to
apply a standard from IFRS if it specifically relates to the transaction.
Statement 2: In the absence of an accounting standard that applies specifically to a transaction, the
most authoritative source in developing and applying an accounting policy is the requirement and
guidance in the standard or interpretation dealing with similar and related issue.
a. Only statement 1 is true c. Both statements are true
b. Only statement 2 is true d. Both statements are false
42. Why is an entity permitted to change an accounting policy?
a. The change would allow the entity to present a more favorable profit picture.
b. The change would result in the financial statements providing more reliable and relevant
information about financial position, financial performance and cash flows.
c. The change is made by the internal auditor
d. The change is made by the CPA
43. Statement 1: A change in the estimated useful life of property, plant and equipment is accounted for
as a change in accounting policy.
Statement 2: A change in inventory valuation from FIFO to average method is accounted for as a
change in accounting estimate.
a. Only statement 1 is true c. Both statements are true
b. Only statement 2 is true d. Both statements are false
44. When it is difficult to distinguish between a change in accounting estimate and a change in
accounting policy, the change is treated as
a. Change in accounting estimate with appropriate disclosure
b. Change in accounting policy
c. Correction of an error
d. Change in accounting estimate with no appropriate disclosure
6
COLLEGE OF SCIENCE AND TECHNOLOGY
Cagamutan Norte, Leganes, Iloilo - 5003
Tel. # (033) 396-2291 ; Fax : (033) 5248081
Email Address : svcst_leganes@[Link]
45. An entity that changed an accounting policy voluntarily should
a. Inform shareholders prior to taking the decision
b. Account for the change retrospectively
c. Treat the effect of the change as a component of OCI
d. Treat the change prospectively
46. Which describes applying a new accounting policy to transactions as if that policy had always been
applied?
a. Retrospective application c. Prospective application
b. Retrospective restatement d. Prospective restatement
47. If it is impracticable to determine the cumulative effect of an accounting change to any of the prior
periods, the accounting change should be accounted for
a. As a prior period error
b. On a prospective basis
c. As a cumulative effect change in the income statement
d. As an adjustment of retained earnings
48. Statement 1: Prior period errors are reflected as adjustment of the opening balance of retained
earnings of the earliest period presented.
Statement 2: An example of a correction of an error in previously issued financial statements is a
change from FIFO method of inventory valuation to the average method.
a. Only statement 1 is true c. Both statements are true
b. Only statement 2 is true d. Both statements are false
49. An entity that changed from cash basis to accrual basis of accounting during the current year should
report
a. Prior period adjustment resulting from the correction of an error.
b. Prior period adjustment resulting from the change in accounting policy.
c. Component of income from continuing operations.
d. Component of income from discontinued operations.
50. A change from an accounting principle that is not generally accepted, to one that is generally
accepted should be reported as
a. Component of income from continuing operations
b. Component of discontinued operations
c. An adjustment of retained earnings
d. Component of other comprehensive income
51. A change in reporting entity is actually a change in
a. Accounting policy c. Accounting method
b. Accounting estimate d. Accounting concept
52. During the current year, an entity discovered that ending inventory reported in the financial
statements for the prior year was understated. How should the entity account for this
understatement?
a. Adjust the beginning inventory in the prior year.
b. Restate the financial statements with corrected balances for all periods presented.
c. Adjust the ending balance in retained earnings at current year-end.
d. Make no entry because the error will self-correct
7
COLLEGE OF SCIENCE AND TECHNOLOGY
Cagamutan Norte, Leganes, Iloilo - 5003
Tel. # (033) 396-2291 ; Fax : (033) 5248081
Email Address : svcst_leganes@[Link]
53. A change in accounting policy requires what kind of adjustment to the financial statements?
a. Current period adjustment c. Prospective adjustment
b. Retrospective adjustment d. Current and prospective adjustment
54. Which describes applying a new accounting policy to transactions as if that policy had always been
applied?
a. Retrospective application c. Prospective application
b. Retrospective restatement d. Prospective restatement
55. XYZ Inc. changes its method of valuation of inventories from weighted-average method to first-in, first-out (FIFO) method.
XYZ Inc. should account for this changes as
a. A change in estimate and account for it prospectively
b. A change in accounting policy and account for it prospectively
c. A change in accounting policy and account for it retrospectively
d. Account for it as a correction of an error and account for it retrospectively
INTERIM FINANCIAL REPORTING
56. Which statement is true regarding interim reporting?
a. The independent view is required for interim financial statements.
b. Interim reports are required on a quarterly basis.
c. Interim reports are not required.
d. Interim reports require the preparation of only a statement of earnings and a statement of
financial position.
57. Which statement about an interim report is true?
a. An interim financial report must consist of a complete set of financial statements.
b. An interim financial report must consist of a condensed set of financial statements.
c. An interim financial report may consist of a condensed set or complete set of financial
statements
d. All of these statements are true.
58. Which basic financial statements are prepared as a minimum for interim financial reporting?
a. Statement of financial position and income statement
b. Statement of financial position, income statement and statement of comprehensive income
c. Statement of financial position, statement of comprehensive income and statement of cash
flows
d. Statement of financial position, statement of comprehensive income, statement of cash flows
and statement of changes in equity
59. Interim financial reports shall be published
a. Once a year at any time during the year.
b. Within a month of the half year-end.
c. On a quarterly basis.
d. Whenever the entity wishes.
60. If an entity does not prepare interim financial reports
a. The year-end financial statements are deemed not to comply with IFRS.
b. The year-end financial statements' compliance with IFRS is not affected.
c. The year-end financial statements shall not be acceptable under local jurisdiction.
d. Interim financial reports shall be included in the year-end financial statements.
8
COLLEGE OF SCIENCE AND TECHNOLOGY
Cagamutan Norte, Leganes, Iloilo - 5003
Tel. # (033) 396-2291 ; Fax : (033) 5248081
Email Address : svcst_leganes@[Link]
OPERATING SEGMENT
61. Segment reporting shall apply to
a. Separate financial statements of an entity only.
b. Consolidated financial statements of a group only.
c. Both the separate financial statements of an entity and the consolidated financial statements
of a group.
d. Neither the separate financial statements of an entity nor the consolidated financial
statements of a group.
62. If a financial report contains both the consolidated financial statements of a parent and the parent's
separate financial statements, segment information is required in
a. The separate financial statements only
b. The consolidated financial statements only
c. Both the separate and consolidated financial statements
d. Neither the separate nor the consolidated financial statements
63. An operating segment is a component of an entity
a. That engages in business activities from which it may earn revenue and incur expenses.
b. Whose operating results are regularly reviewed by the entity's chief operating decision
maker.
c. For which discrete information is available.
d. All of these characterize an operating segment.
64. Which quantitative threshold is not a requirement in qualifying a reportable segment?
a. The segment revenue, both external and internal, is 10% or more of the combined external
and internal revenue of all operating segments.
b. The segment profit or loss is 10% or more of the greater between the combined profit of
profitable segments and combined loss of unprofitable segments.
c. The segment assets are 10% or more of the combined assets of all operating segments.
d. The segment assets are 20% or more of the combined assets of all operating segments.
65. The term chief operating decision maker
a. Refers to a manager with a specific title.
b. Must be disclosed by title in the financial reporting for segments.
c. Must be described in the disclosures for the financial reporting for segments.
d. Refers to a function of allocating resources to the operating segments and assessing their
performance.
END OF MIDTERM MODULE