40 - Financial Statements_theory

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  Page 1 of 9 REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE FINANCIAL STATEMENTS1.The components of the financial statements include all, excepta.Balance sheet, income statement and cash flo statement!.Statement of chan es in e#uit$ o% statement of %eco ni&ed ains and lossesc.Notes, comp%isin a summa%$ of si nificant accountin policies and othe% explanato%$ notesd.Additional statements such as en'i%onmental %epo%ts and 'alue added statements(.)hich is inco%%ect conce%nin fai% p%esentation of financial statements*a.In 'i%tuall$ all ci%cumstances, a fai% p%esentation is achie'ed !$ compliance ithapplica!le +hilippine Financial epo%tin Standa%ds.!.Financial statements shall p%esent fai%l$ the financial position, pe%fo%mance andcash flos of an ente%p%ise.c.An ente%p%ise hose financial statements compl$ ith +FS shall ma-e an explicitand un%ese%'ed statement of such compliance in the notes.d.Inapp%op%iate accountin t%eatments a%e %ectified eithe% !$ disclosu%e of theaccountin policies used o% !$ note o% explanato%$ mate%ial. .)hich is inco%%ect conce%nin the o'e%all conside%ations in the p%epa%ation andp%esentation of financial statements*a.An ente%p%ise shall p%epa%e its financial statements, except fo% cash floinfo%mation, unde% the acc%ual !asis of accountin .!.The p%esentation and classification of items in the financial statements shall !e%etained f%om one pe%iod to the next.c.Assets and lia!ilities, income and expenses, shall not !e offset unless %e#ui%ed o% pe%mitted !$ anothe% +FS.d.Compa%ati'e info%mation need not !e disclosed in %espect of the p%e'ious pe%iod fo% all nume%ical info%mation in the financial statements./.)hich is inco%%ect conce%nin the concept of mate%ialit$ and a %e ation*a.Mate%ialit$ depends on the si&e and natu%e of the item 0ud ed in the pa%ticula% ci%cumstances of its omission o% misstatement. !.Mate%ialit$ p%o'ides that the specific disclosu%e %e#ui%ements of a +FS must !emet e'en if the %esultin info%mation is not mate%ial.c.Items of a dissimila% natu%e o% function shall !e p%esented sepa%atel$ unless the$a%e immate%ial.d.Info%mation is mate%ial if its nondisclosu%e could influence the economic decisions of use%s ta-en on the !asis of the financial statements. .An asset shall !e classified as cu%%ent hen it satisfies an$ of the folloin c%ite%ia2choose the inco%%ect one3.a.It is expected to !e %eali&ed in o% is intended fo% sale o% consumption in the entit$4sno%mal ope%atin c$cle.!.It is held p%ima%il$ fo% the pu%pose of !ein t%aded.c.It is expected to !e %eali&ed in mo%e than tel'e months afte% the !alance sheetdate.d.It is cash o% a cash e#ui'alent hich is un%est%icted f%om !ein exchan ed o% usedto settle a lia!ilit$ fo% at least tel'e months afte% the !alance sheet date.5.The ope%atin c$cle of an ente%p%isea.Is set !$ the indust%$4s t%ade association usuall$ on an a'e%a e len th of time fo% allfi%ms hich a%e mem!e%s of the association.!.Is the time !eteen the ac#uisition of assets fo% p%ocessin and thei% %eali&ation incash o% cash e#ui'alents.c.Is the pe%iod of time no%mall$ elapsed f%om the time the ente%p%ise expends cash tothe time it con'e%ts t%ade %ecei'a!les !ac- into cash.  Page 2 of 9 d.Causes the distinction !eteen cu%%ent and noncu%%ent items to depend on hethe% the$ ill affect cash ithin one $ea%.6.A lia!ilit$ shall !e classified as cu%%ent hen it satisfies an$ of the folloin c%ite%ia2choose the inco%%ect one3a.It is expected to !e settled in the entit$4s no%mal ope%atin c$cle.!.It is held p%ima%il$ fo% the pu%pose of !ein t%aded.c.It is due to !e settled ithin tel'e months afte% the !alance sheet date.d.The entit$ has an unconditional %i ht to defe% settlement of the lia!ilit$ fo% atleast tel'e months afte% the !alance sheet date.7.)hich can !e classified as cu%%ent lia!ilities e'en if the$ a%e due to !e settled afte% mo%e than tel'e months f%om !alance sheet date*a.Ban- o'e%d%afts!.8i'idends pa$a!lec.Income taxes pa$a!led.T%ade pa$a!les and acc%uals fo% emplo$ee and othe% ope%atin costs 9.A lon :te%m de!t that is due to !e settled ithin tel'e months afte% the !alance sheetdate is classified as noncu%%ent henI.An a %eement to %efinance o% %eschedule pa$ment on a lon :te%m !asis iscompleted afte% !alance sheet date and !efo%e the financial statements a%eautho%i&ed fo% issue.II.The entit$ has the disc%etion to %efinance o% %oll o'e% the o!li ation fo% at leasttel'e months afte% the !alance sheet date unde% an existin loan facilit$.a. I onl$!. II onl$c. Both I and IId. Neithe% I no% II1;. )hen an entit$ !%eaches a co'enant unde% a lon :te%m loan a %eement on o% !efo%ethe !alance sheet date ith the effect that the lia!ilit$ !ecomes pa$a!le on demand,the lia!ilit$ is classified as noncu%%ent henI.The lende% has a %eed on o% !efo%e the !alance sheet date to p%o'ide a %acepe%iod endin at least tel'e months afte% the !alance sheet date.II.The lende% has a %eed afte% the !alance sheet date and !efo%e the financialstatements a%e autho%i&ed fo% issue not to demand pa$ment as a conse#uence of the !%each.a. I onl$!. II onl$c. Both I and IId. Neithe% I no% II11.)hich statement is inco%%ect*a.As a minimum, the face of the !alance sheet shall include line items that a%esufficientl$ diffe%ent in natu%e o% function to a%%ant sepa%ate p%esentation.!.The standa%d does not p%esc%i!e the o%de% o% fo%mat in hich the line items a%e to!e p%esented.c.Additional line items, headin s and su!totals shall !e p%esented on the face of the!alance sheet hen such p%esentation is %ele'ant to an unde%standin of the entit$4sfinancial position.d.)hen entit$ p%esents cu%%ent and noncu%%ent captions, it shall classif$ defe%%ed taxassets and defe%%ed tax lia!ilities as cu%%ent. 1(.Biolo ical assets a%e measu%ed at initial %eco nition and e'e%$ !alance sheet date ata.Costc. eplacement cost!.Fai% 'alued. Fai% 'alue less estimated point of sale cost1.The notes to financial statements should !e p%esented in hat o%de%*I.Statement of compliance ith +FSII.Summa%$ of si nificant accountin policiesIII.Suppo%tin computations fo% items p%esented on the face of the statementsI<.=the% disclosu%es, includin contin ent lia!ilities, un%eco ni&ed cont%actualcommitments and nonfinancial disclosu%esa.I, II, III and I<c. II, III, I< and I  Page 3 of 9 !.I<, I, II and IIId. No specific o%de%  1/. Accountin policies a%ea.Concepts that unde%lie the p%epa%ation and p%esentation of financial statements fo% exte%nal use%s.!.Att%i!utes that ma-e the info%mation p%o'ided in financial statements useful to use%s.c.Fundamental p%emises on hich the accountin p%ocess is !asedd.Specific p%inciples, !ases, con'entions, %ules and p%actices adopted !$ anente%p%ise in p%epa%in and p%esentin financial statements.1.The summa%$ of si nificant accountin policies shall desc%i!e I.The measu%ement !asis used in p%epa%in the financial statements.II.The accountin policies used that a%e %ele'ant to an unde%standin of the financialstatements.a. I onl$!. II onl$c. Both I and IId. Neithe% I no% II15.Nonfinancial disclosu%es include all of the folloin , excepta.The domicile and le al fo%m of the ente%p%ise, its count%$ of inco%po%ation and theadd%ess of the %e iste%ed office.!.A desc%iption of the natu%e of the ente%p%ise4s ope%ations and its p%incipal acti'ities.c.The name of the pa%ent and the ultimate pa%ent of the %oup.d.Contin ent lia!ilities and un%eco ni&ed cont%actual commitments.16. elated pa%ties include all of the folloin , except a.Affiliates !.Associatesc.To ente%p%ises that ha'e a common di%ecto% d.>e$ mana ement pe%sonnel, di%ecto%s and office%s of ente%p%ise, and close famil$mem!e%s of such indi'iduals17.?n%elated pa%ties include all of the folloin , excepta.To 'entu%e%s simpl$ !ecause the$ sha%e 0oint cont%ol o'e% a 0oint 'entu%e.!. +%o'ide%s of finance, t%ade unions, pu!lic utilities and o'e%nment depa%tments anda encies simpl$ !$ 'i%tue of thei% no%mal dealin s ith an entit$.c.A custome%, supplie%, f%anchiso% o% ene%al a ent ith hom an entit$ t%ansacts asi nificant 'olume of !usiness, me%el$ !$ 'i%tue of the %esultin economicdependence.d.+ostemplo$ment !enefit plan fo% the !enefit of emplo$ees of the entit$. 19.Close famil$ mem!e%s of an indi'idual a%e those ho ma$ !eexpected to influence o% !e influenced !$ that indi'idual in thei% dealin s ith the entit$.Close famil$ mem!e%s include all of the folloin , excepta.The indi'idual4s spouse and child%en!.Child%en of the indi'idual4s spousec.8ependents of the indi'idual o% the indi'idual4s spoused.B%othe%s and siste%s(;.It is the method used in p%icin t%ansactions !eteen %elated pa%ties!$ ma-in %efe%ence to compa%a!le oods sold in an economicall$ compa%a!le ma%-etto a !u$e% un%elated to the selle%.a.No specific methodc. Fixed p%ice method!.Cost plus 1; @ ma%-:up methodd. ?ncont%olled p%ice method(1.)hich statement is inco%%ect conce%nin the p%esentation of theincome statement*a.The natu%e of expense method means that expenses a%ea %e ated acco%din to thei% natu%e and a%e not %eallocated amon 'a%iousfunctions ithin the ente%p%ise.  Page 4 of 9 !.The cost of sales method means that expenses a%eclassified acco%din to thei% function as cost of sales, dist%i!ution o% administ%ati'eacti'ities.c.+AS 1 %e#ui%es the use of the cost of sales method!ecause this p%esentation often p%o'ides mo%e %ele'ant info%mation to the use%sthan the natu%e of expense method.d.The choice !eteen the functional and natu%alp%esentation depends on histo%ical and indust%$ facto%s and the natu%e of the entit$.((.The statement of %eco ni&ed ains and losses shall include all of thefolloin , excepta.Net un%eali&ed loss on a'aila!le fo% sale secu%ities!.Fo%ei n cu%%enc$ t%anslation ainc.e'aluation su%plusd.8i'idend paid to stoc-holde%s(.)hich statement is co%%ect conce%nin the to concepts of capital*I.?nde% a financial capital concept, such as in'ested mone$ o% in'ested pu%chasin poe%, capital is s$non$mous ith the net assets o% e#uit$ of the ente%p%ise.II.?nde% a ph$sical capital concept, such as ope%atin capa!ilit$, capital is %e a%dedas the p%oducti'e capacit$ of the ente%p%ise.a. Both I and II!. Neithe% I no% IIc. I onl$d. II onl$(/.)hich is inco%%ect conce%nin accountin chan es*a.The effect of a chan e in accountin estimate shall !e t%eated cu%%entl$ andp%ospecti'el$, if necessa%$.!.The effect of a chan e in the expected patte%n of consumption of economic !enefitsof a dep%ecia!le asset should !e included in the dete%mination of income o% loss of the pe%iod of chan e and futu%e pe%iods.c.A chan e in accountin polic$ shall !e accounted fo% %et%ospecti'el$.d.If it is difficult to distin uish !eteen a chan e in accountin polic$ and a chan e inaccountin estimate, the chan e is t%eated as a chan e in accountin polic$.(.A chan e in accountin polic$ shall !e made henI.e#ui%ed !$ a Standa%d o% an inte%p%etation of the Standa%d.II.The chan e ill %esult in mo%e %ele'ant o% %elia!le info%mation a!out financialposition, pe%fo%mance and cash flos.a. I onl$!. II onl$c. Both I and IId. Neithe% I no% II(5.+%io% pe%iod e%%o%s a%e omissions f%om and misstatements in thefinancial statements fo% one o% mo%e pe%iods a%isin f%om a failu%e o% misuse of %elia!leinfo%mation thatI.)as a'aila!le hen financial statements fo% those pe%iods e%e autho%i&ed fo% issue.II.Could %easona!l$ !e expected to ha'e !een o!tained and ta-en into account in thep%epa%ation and p%esentation of those financial statements.a. I onl$!. II onl$c. Both I and IId. Neithe% I no% II(6.A compan$ has included in its consolidated financial statements this$ea% a su!sidia%$ ac#ui%ed se'e%al $ea%s a o that as app%op%iatel$ excluded f%omconsolidation last $ea%. This %esults ina.Accountin chan e that should !e %epo%ted p%ospecti'el$!.Accountin chan e that should !e %epo%ted !$ %estatin the financial statements of all p%io% pe%iods p%esentedc.A co%%ection of an e%%o% d.Neithe% an accountin chan e no% a co%%ection of an e%%o%.(7.A discontinued ope%ation is a component of an entit$ that eithe% has!een disposed of o% is classified as held fo% sale and
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