Chapter 6

Financial Statements
(2025 Edition)

PRACTICE PROBLEMS
6A. Identification of Financial Statements

Answer
1. Statement of Profit or Loss
2. Statement of Financial Position
3. Statement of Cash Flows
4. Statement of Changes in Equity
5. Notes to the Financial Statements
6. Statement of Financial Position
7. Statement of Cash Flows
8. Notes to the Financial Statements
9. Statement of Cash Flows (Operating Activities Section)
10. Statement of Changes in Equity

6B. Materiality Evaluation

Answer Explanation
1. M Significantly affects the company’s financial position and
performance and could influence users’ decisions.
2. IM Very small, and the misclassification does not alter the
overall financial position or performance significantly.
3. IM Negligible size and limited impact on users’ decisions.
4. M Significant impact on net income and its relevance to users
assessing legal risks.
5. IM Unlikely to influence users’ decisions due to its negligible
size.
6. M Relates to a critical operational asset and could mislead
users about the company’s asset valuation.
7. IM Size is relatively insignificant and unlikely to influence
users’ decisions.
8. M Distorts revenue presentation, significantly impacting
users’ understanding of core business performance.
9. M Relates to a significant provision reversal, which is
important for users assessing the company’s risk profile.
10. IM Unlikely to affect users’ decisions due to its negligible size.
Chapter 6
Financial Statements

6C. Aggregation and Disaggregation

Answer Explanation
1. A Inventory (raw materials, work-in-progress, finished
goods) is typically aggregated as one line item on the face
of the financial statements, with details in the notes.
2. A Employee benefits (wages, bonuses, training costs) are
aggregated into a single line item, such as "Employee
Benefits Expense."
3. D Revenue from product sales and service income should be
disaggregated into separate line items to provide a clear
presentation of revenue streams.
4. A Trade receivables (domestic and international) are
typically aggregated into a single line item on the face of
the statement of financial position.
5. A Depreciation expenses for different assets (machinery,
buildings, vehicles) are aggregated into a single line item
on the statement of profit or loss.
6. D Significant items like the ₱5 million gain on equipment
disposal must be disaggregated and separately presented.
7. A Operating expenses (rent, utilities, miscellaneous) are
typically aggregated into a single line item.
8. A Trade payables, accrued wages, and interest payable are
generally aggregated into a single line item for current
liabilities.
9. A Intangible assets (patents, trademarks, software licenses)
are generally aggregated into one line item as "Intangible
Assets."
10. A Finance costs (interest and bank charges) are typically
aggregated into one line item on the face of the statement
of profit or loss.

2
 Chapter 6
Financial Statements

6D. Offsetting

Answer Explanation
1. A Permitted under PAS 12 Income Taxes if there is a legally
enforceable right to offset and net settlement is intended.
2. A This is a measurement adjustment, not offsetting. It
complies with PFRS presentation requirements for assets.
3. NA This is offsetting and is generally prohibited unless there
is a legally enforceable right and net settlement is intended
(e.g., PAS 32 for financial instruments).
4. A This is allowed under PFRS 15 Revenue from Contracts
with Customers, as it reflects the net amount of revenue.
5. NA This obscures material information, violating PFRS
principles on disaggregation and faithful representation.
6. A This is a measurement adjustment under PFRS 9
Financial Instruments, not considered offsetting.
7. NA Gains and losses should generally be presented separately
unless specifically permitted by PFRS.
8. NA Generally prohibited as it obscures the nature of income
and expenses, unless explicitly allowed by PFRS.
9. A This is a measurement adjustment to reflect the net
realizable value of inventory, in line with PFRS
requirements.
10. NA Cash flows should be presented separately by activity
(operating, investing, and financing) as per PAS 7
Statement of Cash Flows.

3
Chapter 6
Financial Statements

MULTIPLE CHOICE QUESTIONS

Financial Statements

Answer Explanation
1. D
2. D
3. B
4. C
5. A
6. D
7. C
8. A
9. D
10. D

Materiality

Answer Explanation
1. A
2. D
3. D
4. C
5. C
6. D
7. C
8. A
9. D
10. B

Identification of the Financial Statements

Answer Explanation
1. D
2. D
3. D
4. B
5. D
6. D
7. B
8. B
9. A
10. D

4
 Chapter 6
Financial Statements

Frequency of Reporting

Answer Explanation
1. B
2. D
3. D
4. D
5. C

Consistency of Presentation, Disclosure and Classification

Answer Explanation
1. A
2. D
3. D
4. C
5. D
6. D
7. D
8. A
9. D
10. A

Comparative Information

Answer Explanation
1. D
2. D
3. B
4. D
5. D
6. D
7. B
8. A
9. A
10. A

5
Chapter 6
Financial Statements

Aggregation and Disaggregation

Answer Explanation
1. D
2. D
3. C
4. D
5. D
6. B
7. D
8. D
9. D
10. D

Offsetting

Answer Explanation
1. D
2. B
3. D
4. B
5. D
6. C
7. C
8. D
9. B
10. A