Deck 4: Presentation of Financial Statements

Question 1

IFRS requires at least how many comparative year(s) of the amounts in the financial statements?

A) 0
B) 1
C) 2
D) 3

Answer 1

2

Question 2

Entity A has a history of profitable and successful operations, as well as little or no business and financial risks. Is Entity A considered a going concern?

Answer 2

True

Question 3

When an entity is no longer a going concern, most fixed assets would be measured at:

A) Amortized cost
B) Historical cost
C) Fair value less costs to sell
D) None of the above

Answer 3

Fair value less costs to sell

Question 4

Which of the following financial statement items are not allowed to be offset in the financial statements?

A) Accounts receivable and allowance for doubtful accounts
B) Financial assets and financial liabilities
C) Property, plant, and equipment and accumulated depreciation
D) All of the above may be offset in the financial statements

Question 5

An entity is required to prepare a complete set of comparative financial statements at least

A) Quarterly
B) Semi-annually
C) Annually
D) Biannually

Question 6

Which of the following items is not required for a complete set of financial statements?

A) Presentation currency
B) Level of rounding
C) Name of the company
D) The date at the end of the reporting period
E) All of the above must be included

Question 7

Entity A manufactures inventory. Entity A holds raw materials for 3 months, and it usually takes 4 months to sell the finished goods when completed. If the production process takes 6 months to complete the inventory, and it takes 1 month to collect cash on receivables, what is the normal operating cycle of Entity A?

A) 6 months
B) 9 months
C) 13 months
D) 14 months

Question 8

Entity A is an aged cheese producer. The length of the normal operating cycles is 30 months. Should the cheese inventory be considered current?

A) No
B) Yes
C) Only those predicted to be sold in the next 12 months

Question 9

Each of the following is a standard or interpretation issued by the International Accounting Standards Board, except:

A) International Financial Reporting Standards (IFRS)
B) International Accounting Standards (IAS);
C) Accounting Standards Updates (ASU)
D) IFRIC Interpretations
E) SIC Interpretations

Question 10

Other comprehensive income (OCI):

A) Only includes a portion of income.
B) Never includes any types of expenses.
C) Is always included in the profit/loss statement.
D) Two of the above.
E) None of the above.

Question 11

To achieve fair presentation consistent with principles set out in the Conceptual Framework, an entity may decide to choose not to comply with a particular IFRS:

A) Under no circumstances.
B) If a magistrate issues a ruling (a true and fair override) to do so.
C) Only in the extremely rare circumstance that management decides that compliance would present an unfair loss in the entity's current-year financial statements.
D) When the entity discloses the title of the IFRS and the related requirement from which it departed, the nature of the departure, and why the prescribed treatment would be misleading.
E) Two of the above.

Question 12

Which of the following would not be considered a going concern?

A) Company A achieved its highest gross margin this year and expects it to remain at current levels for the next five years. However, management now deems it unlikely that forecasted operating income will cover required interest payments on new debt. The company sees no way to avoid insolvency.
B) Company B suffered a net loss this year resulting from a warehouse fire. The company still has 10 other warehouses where it keeps 95% of its inventory and it expects to achieve regular profits next year.
C) Company C has had 30 years of profits. Earlier this year, initial proceedings for an antitrust case against the company concluded at the European Commission and a decision is expected soon. An unfavorable decision could have a significant impact on the financial position of the Company.
D) Each of the above should be considered a going concern.
E) None of the above should be considered a going concern.
F) Company A & Company C
G) Company B & Company C

Question 13

Which of the following is true about materiality?

A) Materiality should be considered from the perspective of management.
B) A line item that is individually material is aggregated with other items in the financial statements or notes.
C) When assessing materiality of prior period errors, the effect on profitability trends should not be considered.
D) Judgment is required to determine whether prior-period errors are material because even immaterial prior-period errors will impact users' decisions made on the basis of the financial statements.
E) None of the above.

Question 14

Offsetting (presentation of a net amount):

A) Is always allowed
B) Is generally allowed for balance sheet items, and income and expense items except when precluded by a specific IFRS.
C) Is generally allowed for balance sheet items, but never for income or expenses.
D) Can be seen when a company presents inventories net of obsolescence allowances.
E) Can obscure the existence of some assets and liabilities.

Question 15

IAS 1 requires certain line items in the Statement of Financial Position. However, there may be circumstances in which a company will augment the presentation to help users understand the entity's financial position. Which of the following is true about management's considerations to present additional items?

A) Management will use the true and fair override instead of judgment.
B) Management should avoid considering adding additional liabilities to the balance sheet and instead choose to present assets.
C) Management should only consider the amount and timing of liabilities.
D) Management should always consider both the nature and liquidity of assets.

Question 16

Which of the following is not characteristic of a current asset?

A) The entity expects to realize or use the asset in its normal operating cycle
B) The entity holds the asset for capital purposes
C) The entity expects to realize the asset within one year of the reporting period
D) The asset is cash or a cash equivalent
E) All of the above are characteristics of a current asset.

Question 17

Which of the following is not true about information presented in the statement of financial position or in the notes?

A) An entity will disclose further subclassifications of the line items based on the requirements of IFRS as well as the size, nature, and function of the amounts involved.
B) An example of subclassification for Property, Plant, and Equipment is "land and buildings."
C) Entities with share capital will disclose the number of shares authorized, issued and fully paid, and issued but not fully paid
D) Entities without share capital (such as partnerships and trusts) are not required to make any disclosures.

Question 18

Which of the following best describes income as defined by IAS 1?

A) Income is the increase in economic benefits during an accounting period in the form of decreases in liabilities, enhancement to assets, or other inflows that result in increases to equity, but does not include equity contributions.
B) Income is the increase in cash resulting from business operations after decreases in economic benefits during the accounting period in the form of outflows or depletions of assets except those distributions relating to equity participants.
C) Income is defined as the net increase in current economic assets resulting from cash receipts from business operations less accrued economic outflows excluding distributions to equity participants.
D) Income is the sum of all net economic increases, including revenues and gains, in all accounting periods since inception of the entity, other than those relating to contributions from equity participants.

Question 19

Which of the following is true about an entity's choices for presenting comprehensive income?

A) An entity has only the choice between a statement of profit or loss (PL) or a statement beginning with PL and listing all OCI items.
B) An entity must choose between presenting a statement of comprehensive income or a profit/loss statement showing net income or a net loss.
C) An entity can present total comprehensive income either in a single statement or in two statements.
D) The accounting policy choice an entity selects is applied consistently from period to period and can never be changed.

Question 20

Which of the following would likely be classified as other comprehensive income (OCI)?

A) Share of profit/loss of joint ventures accounted for using the equity method
B) Foreign currency translation gains/losses
C) Tax expense
D) Impairment losses

Question 21

The function of an expense method:

A) Focuses on aggregating expenses according to the purpose within the entity (e.g., production, distribution, sales).
B) Is commonly used under US GAAP, but is not allowed under IFRS.
C) Focuses on aggregating expenses within PL according to their type (e.g., salaries, wages, depreciation, etc.).
D) Is preferable in the Notes because it generally provides more relevant information than other methods.

Question 22

Which of the following requires significant judgment?

A) Whether information is material and needs to be presented separately in the financial statements
B) The entity's ability to continue as a going concern
C) Identifying and presenting discontinued operations in the statement of PL and OCI
D) Whether presentation of assets and liabilities in order of liquidity is more relevant and reliable than the current/non-current classification
E) All of the above.

Question 23

A complete set of financial statements includes the statement of financial position, the statement of comprehensive income, the statement of changes in equity, and the statement of cash flows.

Question 24

Under IFRS, an entity is permitted to title its statement of financial position as a balance sheet.

Question 25

The statement of financial position is regarded as the most significant financial statement, which is why it is commonly listed first in a complete set of financial statements.

Question 26

An entity is required to make an explicit and unreserved statement of compliance with IFRS in the notes to the financial statements.

Question 27

What is the Statement of Changes in Equity? Describe the relationship between it and the PL and OCI statements. What are the three disclosures required as a part of the statement?

Question 28

When a grouping of items is material, an entity should present them separately from other classes of items.

Question 29

Changes in equity arising from transactions with owners are presented in the statement and profit and loss.

Question 30

Accrual accounting depicts the effects of transactions on an entity's economic resources and claims when the resulting cash receipts and payments occur.

Question 31

The accrual method of accounting furthers management's discretion in determining profit for the period.

Question 32

Because investors and creditors care only about the overall profitability of a company, they do not consider whether assets and liabilities are current or non-current.

Question 33

A liability held for trading purposes is generally considered current.

Question 34

Equity capital and reserves are disaggregated into paid-in capital, share premium, and reserves.

Question 35

Explain the difference between a current asset and a non-current asset and the difference between a current liability and a non-current liability. Why is this classification important?

Question 36

An entity may choose to present a net income instead of total comprehensive income.

Question 37

An entity may choose to present expenses based on either their nature or their function within the entity.

Question 38

An entity is not required to disclose in the notes a summary of significant accounting policies so long as the policy choices are consistent with industry practices.

Question 39

"Accumulated OCI" under US GAAP is the equivalent to "Other Reserves" under IFRS.

Question 40

Explain the statement of compliance with IFRS. Where will it be found? Why is it important?

Question 41

Consider the following scenario: You are in a position of management at Varazdin Wireless, an international telecommunications provider. In preparing financial statements, what qualitative and quantitative factors would you use in determining whether the entity is a going concern? Is the company a going concern?
Background: Varazdin Wireless has suffered five years of consecutive losses as a result of shifting consumer preferences. Last week, the CEO issued a press release highlighting that the company has a new proprietary mobile smartphone in the final stages of development. The company itself does not have requisite capital to finance the production of the device, and the company is already behind on its repayments to creditors. In an interview on a business television network, the company's CFO celebrated the anticipated next chapter of Varazin's business, citing the unparalleled capability of its new phone. The company's consultants believe that manufacturing the proprietary device will be a profitable line of business as it has tested exceptionally well with focus groups. Production has not begun because the company believes it has exhausted all available avenues for financing. The CEO's announcement and CFO's interview come on the heels of a blistering article in the Wall Street Diary highlighting that the international conglomerate has a rapidly decreasing consumer base. This report is consistent with internal projections forecasting that current consumer trends will lead to the company's insolvency and forced liquidation before the end of next year.