CHAPTER 6: NOTES TO FINANCIAL STATEMENTS

1.1

True Or False

Write true if the statement is correct. If you believe otherwise, write false and state
your reason briefly.
_____ 1. The notes to the financial statements will provide information about the
financial position, financial operating performance and cash flows of an
entity that is useful to the users in making economic decisions.
______2. One of the purposes of the notes to the financial statements is to present
information about the basis of preparing the financial statements and the
specific accounting policies applied.
______3. The first information presented in the notes to the financial statements is
about the summary of significant policies used by the entity.
______4. In the section summary of accounting policies of the notes to the financial
statements, the entity describes the nature of its operation and principal
activities.
______5. Nonfinancial information disclosed in the notes to the financial statements
includes information about the name of the parent entity and the ultimate
parent of the group, and the names and addresses of the corporate
directors and officers.
______6. The summary of significant policies disclosed information about
refinancing of debt subsequent to the reporting period, and information on
the adequacy of pension plan assets relative to vested assets.
______7. A related party transaction is a transfer of resources or obligations between
related parties, regardless of whether a price is charged or not.
______8. The third type of information disclosed in the notes to the financial
statements is the supporting information for items presented on the face of
the financial statements.
______9. The amount of dividends proposed or declared before the financial
statements are authorized for issue but not recognized as distribution
during the period and the related amount per share are not disclosed in the
notes to the financial statement, but shown on the face of the financial
statements.
_____10. The notes to the financial statement provide additional information not
presented on the face of the financial statements, but necessary for a fair
presentation.

1.2

True or False

Write true if the statement is correct. If you believe otherwise, write false and state
your reason briefly.
______1. The notes to the financial statements are one of the elements comprising
complete set of financial statements.
______2. The notes to financial statements shall present information about the basis
of preparation of the financial statements and the accounting policies
adopted.
______3. Financial statements prepared an accordance with PFRS without
appropriate notes and disclosures achieve the status of fairly presented.

______4. The notes disclose information required by the Standards that is not
presented elsewhere in the financial statements.
______5. Normally, the statement of compliance with PFRS is presented ahead than
the information about the corporate entity.
______6. It is safe to assume that financial statements are fairly presented with they
are prepared in accordance with PFRS, with additional disclosures if
necessary.
______7. Disclosure of information relevant to users is the primary objective of notes
to financial statements.
______8. A line item appearing on the face of the financial statements need not be
included in the notes.
______9. Only information required by the PFRS that does not appear on the face of
the financial statements shall be disclosed in the notes.
_____10. An entity that presents financial statements in accordance with PFRS does
not have to indicate in the notes that the financial statements comply with
the requirements of PFRS.

1.3

True or False

Write true if the statement is correct. If you believe otherwise, write false and state
your reason briefly.
______1. When there are no alternatives allowed in the Standards, the management
need not disclose the measurement basis.
______2. The measurement basis used in the preparation of the financial statement
should be disclosed in the notes, because it may affect the decision of the
users.
______3. The basis used on estimates need not be disclosed since the happening of
future event is not certain to happen.
______4. The accounting policies not specifically required by PFRS to be presented
shall not be disclosed in the notes.
______5. The compositions of the line items are presented on the face of the
financial statements.
______6. An entity shall disclose also the nature of its operation and its principal
business.
______7. Major assumptions concerning the future and the bases of estimation shall
be disclosed in the notes.
______8. The components of cash and cash equivalents are presented in the
statement of financial position.
______9. The entity shall disclose the cost formulas used, accounting policies on
inventories and the basis of measurement in the notes.
_____10. The carrying amount of certain assets and liabilities requires estimation of
the effect of uncertain future events at the date of the statement of
financial position.

1.4

Multiple Choice

Select the best answer.

1. Statement 1: The notes present information about the basis of preparation
of the financial statements and the specific accounting policies applied.

Statement 2: The notes provide information that is presented elsewhere in

the financial statements but is relevant for users to understand.
a.
b.
c.
d.

Only the first statement is correct.

Only the second statement is correct.
Both statements are correct.
Neither statement is correct.

2. Statement 1: The notes shall be presented in a systematic manner, hence,

the line items in the financial statements shall be cross-referenced with the
other financial statements.
Statement 2: The line items in the financial statements shall be crossreferenced to the notes.
a.
b.
c.
d.

Only the first statement is correct.

Only the second statement is correct.
Both statements are correct.
Neither statement is correct.

3. Normally, the notes are presented in the following order:

I.
II.
III.

Statement of compliance with PFRS

Summary of significant accounting policies
Supporting information for line items presented on the face of the balance
sheet, income
statement, statement of changes in equity and cash flow statement
Business entity information

IV.

a. I, II, III and IV

b. II, I, IV and III
4. An
a.
b.
c.
d.

c.
d.

III, II, I and IV

IV, I, II, and III

entity shall disclose the following in the notes, except

its domicile and legal form an entity
its principal place of the business
the lists of stockholders
the name of the parent company

5. An entity shall disclose in the notes information about the key assumptions
concerning
I.
the past and present and other key sources of estimations uncertainty at
the statement of financial position that have significant risk causing
material adjustments to the carrying amount of assets and liabilities.
II.
the future, and other key resources of estimations uncertainty at the date
of the statement of financial position that have significant risk causing
material adjustments to the carrying amount of assets and liabilities.
a. I only
c. Both I and II
b. II only
d. Neither I nor II
6. The following information on inventories shall be disclosed in the financial
statements, except
a. the total carrying amount of inventories
b. the basis of measuring the inventories
c. the location of inventories
d. the amount of inventories recognized as expense during the period

7. Statement 1: An entity shall disclose the aggregate gain or loss arising

during the current period on initial recognition of biological assets and
agricultural products.
Statement 2: An entity shall disclose the change in fair values less
estimated point-of-sale costs of biological assets.
a. Only the first statement is correct.
b. Only the second statement is correct.
c. Both statements are correct.
d. Neither statement is correct.
8. Statement 1: An entity shall disclose the methods and significant
assumptions used to determine the fair value of each group of agricultural
product at the point of sale.
Statement 2: An entity shall disclose the fair value less estimated point-ofsale of agricultural produce harvest during the period determined at the point
of sale.
a.
b.
c.
d.

Only the first statement is correct.

Only the second statement is correct.
Both statements are correct.
Neither statement is correct.

9. An entity that measures biological assets at their cost less any accumulated
depreciation and any accumulated impairment losses shall disclose the
following, except
a. the parties involved in the acquisition and disposition.
b. the depreciation method used.
c. the useful life used.
d. the gross carrying amount at the beginning and end of the period.
10.
Statement 1: The notes include description or explanation about
items that do not qualify to be recognized in the financial statements.
Statement 2: The information disclosed in the notes serves as substitute to
the information not presented in the statement.
a.
b.
c.
d.

Only the first statement is correct.

Only the second statement is correct.
Both statements are correct.
Neither statement is correct.