Ch. 7 - Notes Pt. 1

Question 1

Provides information to those presented in the financial statements

Answer 1

Notes

Question 2

Integral part of a complete set of financial statements

Answer 2

Notes

Question 3

Complete structure of Notes:

Answer 3

1. General information
2. Statement of compliance with PFRSs
3. Summary of significant accounting policies
4. Breakdown of line items
5. Other disclosures required by PFRSs
6. Other disclosure not required by PFRSs but management deems relevant

Question 4

Specific principles, rules & practices applied by an entity in preparing & presenting financial statements

Answer 4

Accounting policies

Question 5

Hierarchy to be followed by management:

Answer 5

Shall:
1. Requirements in other PFRSs dealing with similar transactions
2. Conceptual Framework
May:
1. Pronouncements issued by other standard-setting bodies
2. Other accounting literature

Question 6

PAS 8 permits change in accounting policy only if:

Answer 6

Change is:
1. required by PFRSs
2. results in reliable and more relevant information

Question 7

Usually results from a change in a measurement basis

Answer 7

Change in accounting policy

Question 8

Change in accounting policies are accounted for using the following order of priority:

Answer 8

1. Transitional provision, if any
2. Retrospective application, in the absence of transitional provision
3. Prospective application, if retrospective application is impracticable

Question 9

Specifically deals with that accounting policy

Answer 9

Transitional provision

Question 10

Adjusting the opening balance of each affected component of equity

Answer 10

Retrospective application

Question 11

Means cannot be done after making every reasonable effort to do so

Answer 11

Impracticable

Question 12

If the other standard-setting body amends the adopted pronouncement and entity decides to adopt the amended version

Answer 12

Voluntary change in accounting policy

Question 13

Voluntary change in accounting policy is accounted for by

Answer 13

Retrospective application

Question 14

Change that results in financial statements that are those of a different reporting entity

Answer 14

Change in reporting entity

Question 15

Change in reporting entity is limited mainly to:

Answer 15

1. presenting combined financial statements in place of financial statements of individual entities
2. changing specific subsidiaries that make up the group of entities
3. changing the entities included in combined financial statements

Question 16

Change in reporting entity is accounted for by

Answer 16

Retrospective application

Question 17

PAS 8 mentions only 2 accounting changes:

Answer 17

1. Change in accounting policy
2. Change in accounting estimate

Question 18

Many items in the financial statements cannot be measured with precision but only through

Answer 18

estimation

Question 19

Essential part of financial reporting and does not undermine reliability of information

Answer 19

Estimates

Question 20

Following requires estimation (5)

Answer 20

1. NRVs
2. Depreciation
3. Bad debts
4. FV of assets & liabilities
5. Provisions

Question 21

Adjustment for the carrying amount of asset/liability or amount of the periodic consumption that results from assessment of present status and expected future benefits

Answer 21

Change in accounting estimate

Question 22

Results from changes on how expected inflows/outflows of economic benefits are realized from assets or incurred on liabilities

Answer 22

Change in accounting estimate

Question 23

If change is difficult to distinguish between those two, change is treated as:

Answer 23

Change in accounting estimate

Question 24

Change in accounting estimate is accounted for by

Answer 24

Prospective application

Question 25

Recognizing the effects of the change in profit or loss

Answer 25

Prospective application

Question 26

Misapplication of accounting policies, mathematical mistakes, or misinterpretations of facts, and fraud

Answer 26

Errors

Question 27

Cause the financial statements to be misstated

Answer 27

Material errors

Question 28

Fraud

Answer 28

Intentional errors

Question 29

Errors can be:

Answer 29

1. Error of commission 2. Error of omission

Question 30

Doing something wrong

Answer 30

Error of commission

Question 31

Not doing something that should have been done

Answer 31

Error of omission

Question 32

2 types of errors according to period of occurrence:

Answer 32

1. Current period errors 2. Prior period errors

Question 33

Errors in the current period that were discovered during or after the current period but before authorization of FS; SIMPLE CORRECTED BY CORRECTING ENTRIES

Answer 33

Current period errors

Question 34

Errors in one or more prior periods that were discovered either during or after the current period but before authorization of FS; CORRECTED BY RETROSPECTIVE RESTATEMENT

Answer 34

Prior period errors

Question 35

Applying new accounting policy as if policy had always been applied

Answer 35

Retrospective application

Question 36

Correcting a prior period error as if the error had never occurred

Answer 36

Retrospective restatement

Question 37

Closing entries have not yet been made; NOMINAL ACCOUNTS CAN STILL BE USED IN CORRECTING ENTRIES

Answer 37

'Books still open'

Question 38

Closing entries have already been made; ONLY REAL ACCOUNTS ARE USED IN CORRECTING ENTRIES

Answer 38

'Books closed'

Question 39

Types of Errors

Answer 39

1. Errors in principle 2. Clerical and similar errors

Question 40

Lack of knowledge of accounting standards, misuse of available information, or misinterpretation of accounting standards

Answer 40

Errors in principle

Question 41

Intentional misstatement of financial statements is called

Answer 41

Fraudulent financial reporting

Question 42

Include mathematical mistakes, oversights or misinterpretation of facts

Answer 42

Clerical and similar errors

Question 43

The number of digits is incorrectly increased or decreased

Answer 43

Transplacement error

Question 44

When digits in an amount are interchanged

Answer 44

Transposition error

Question 45

Accountant forgot to record a transaction

Answer 45

Error of omission

Question 46

Accountant recorded a transaction twice

Answer 46

Error of commission

Question 47

Erroneous credit is compensated by the erroneous debit

Answer 47

Compensating errors

Question 48

Bug in the computer program

Answer 48

Accounting system error

Question 49

Errors affecting both SOFP and SCI are either:

Answer 49

a. Counterbalancing errors b. Non-counterbalancing errors

Question 50

Errors, if remained uncorrected are automatically corrected in next accounting period

Answer 50

Counterbalancing errors

Question 51

Errors, if remained uncorrected, are not automatically corrected in next accounting period

Answer 51

Non-counterbalancing errors

Question 52

Ending inventory : Profit

Answer 52

Direct relationship

Question 53

Beginning inventory & Purchases : COGS

Answer 53

Direct relationship

Question 54

Beginning inventory & Purchases : Profit

Answer 54

Inverse relationship

Question 55

Ending inventory : COGS

Answer 55

Inverse relationship

Question 56

Asset-related account : Profit

Answer 56

Direct relationship

Question 57

Asset-related account:

Answer 57

> Error on prepaid asset > Error on accrued income

Question 58

Liability-related account : Profit

Answer 58

Inverse relationship

Question 59

Liabilty-related account:

Answer 59

> Error on unearned income > Error on accrued expense

Question 60

Current assets - Current liabilities

Answer 60

Working Capital

Question 61

If current assets are understated, working capital is

Answer 61

understated

Question 62

If current liabilities are understated, working capital is

Answer 62

overstated

Question 63

Events, favorable and unfavorable, that occur between the end of reporting period and date when financial statements are authorize for issue

Answer 63

Events after the Reporting Period

Question 64

Date when management authorizes financial statements for issue regardless of whether it is final or subject to further approval

Answer 64

Date of authorization of the financial statements

Question 65

2 Types of Events after the Reporting Period

Answer 65

1. Adjusting events after the reporting period 2. Non-adjusting events after the reporting period

Question 66

Events that provide evidence of conditions that existed at the end of the reporting period

Answer 66

Adjusting events after the reporting period

Question 67

Events that are indicative of conditions that arose after the reporting period; disclosed if they are material

Answer 67

Non-adjusting events after the reporting period

Question 68

Disclosure in the notes:

Answer 68

a. Date of authorization for issue b. Update on the disclosures that includes effects of adjusting events c. Non-adjusting events that are material i. nature of event ii. estimate of its financial effect, or a statement that such an estimated cannot be made