5. Entity A acquires equipment by paying a 10% down payment and issuing a note payable for the balance. How should Entity A report the transaction in the statement of cash flows? Down payment Note payable a. Investing activities None b. Investing activities Financing activities c. Financing activities None d. None None 193 PROBLEM 2: FOR CLASSROOM DISCUSSION 1. According to PAS 8, in the absence of a PFRS that specifically deals with a transaction, management shall a refer to the concepts under the Conceptual Framework b. adopt the provisions of the US GAAP. use its judgment in developing and applying an accounting policy that results in information that is relevant and reliable. d. consider the applicability of relevant accounting literature. c. 2. According to PAS 8, a change in accounting policy is accounted for a. using a transitional provision, if any. b. retrospectively c prospectively, if retrospective application is impracticable. d. a, b or c, whichever is most appropriate 3 1 3. This refers to applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied. c. Retrospective application c. Prospective application d. Retrospective restatement d. Impracticable application 4. According to PAS 8, a change in accounting estimate is accounted for a. using a transitional provision, if any. b. retrospectively. c prospectively. d. a, b or c, whichever is most appropriate 5. Entity A changes its inventory cost formula from FIFO to weighted average. How should Entity A account for thus change? a. by retrospective restatement, as a change in accounting policy 194 PAS 8 b. by prospective application, as a change in accounting estimate c. by retrospective application, as a change in accounting policy d. as a correction of prior period error