Which is a Purpose of the Notes to Financial Statements

HTU CPA In-House Review (HCIR) Financial Accounting and Reporting TOA – NOTES TO FINANCIAL STATEMENTS 1. Which is a purpose of the notes to financial statements? a. To present information about the basis of preparation of the financial statements and the specific accounting policies used. b. To disclosed the information required by Philippine Financial Reporting Standards that is not presented elsewhere in the financial statements. c. To provide additional information which is not presented on the face of the financial statements but that is necessary for a fair presentation. d. All of these can be considered a purpose of the notes to financial statements. 2. Which is the first item in presenting the notes to financial statements? a. Statement of compliance with PFRS b. Other disclosures, such as contingent liabilities, unrecognized contractual commitments and nonfinancial disclosures c. Supporting information for items presented on the face of the financial statements d. Summary of significant accounting policies 3. An entity is required to disclose all of the following nonfinancial information, except a. A description of the nature of the entity’s operations and the principal activities b. The name of the parent entity and the ultimate parent c. Domicile and legal form of the entity, the country of incorporation and address of the registered office. d. Names and addresses of directors and officers. 4. Which of the following is a method of disclosing relevant financial information? a. Supporting schedule b. Parenthetical explanation c. Cross reference d. All of these are methods of disclosure 5. The presentation of the notes to financial statements in a systematic manner a. Is voluntary b. Is mandatory c. Is mandatory, as far as practicable d. Depends on the industry 6. The cross-reference between each line item in the financial statements and any related information disclosed in the notes to financial statements. a. Is voluntary b. Is mandatory c. Depends on the industry d. Is either voluntary or mandatory 7. Disclosure of information about key sources of estimation uncertainty a. Is voluntary b. Is mandatory c. Is either voluntary or mandatory d. Depends on the industry 8. Disclosure of information about judgments a. b. c. d. Is voluntary Is mandatory Is either voluntary or mandatory Depends on the industry 9. What is the purpose of information presented in the noted to financial statements? a. To provide disclosures required by generally accepted accounting principles b. To correct improper presentation in the financial statements c. To provide recognition of amounts not included in the financial statements d. To present management response to auditor comments 10. The notes to financial statements should not be used to a. Describe significant accounting policies. b. Describe depreciation methods employed. c. Describe the principles and methods peculiar to the industry in which the entity operates. d. Correct an improper presentation in the financial statements. 11. An entity shall disclose in the summary of significant accounting policies a. The measurement basis used in preparing the financial statements. b. All the measurement bases irrespective of whether used by the entity. c. The measurement basis used in preparing the financial statements and the accounting policies used. d. All of the measurement bases and the accounting policy choices available to the entity irrespective of whether used. 12. Which of the following information should be disclosed in the summary of significant accounting policies? a. Refinancing of debt subsequent to the reporting period b. Guarantee of indebtedness of others c. Criteria for determining which investments are treated as cash equivalents d. Adequacy of pension plan assets relative to vested benefits. 13. The summary of significant accounting policies should disclose a. Proforma effect of retroactive application of an accounting change b. Basis of profit recognition on long term construction contracts c. Adequacy of pension plan assets in relation to vested benefits. d. Future lease payments 14. The summary of significant accounting policies should disclose a. The composition of property, plant and equipment and the depreciation method used b. The composition of property, plant and equipment only c. The depreciation method used only d. Neither the composition of property, plant and equipment nor the depreciation method used 15. Which of the following should be included in the summary of significant accounting policies? a. Property, plant and equipment recorded at cost with the depreciation computed principally by straight line method b. A business component was sold during the current year c. Breakdown of sales attributable to business components d. Future ordinary share dividends are expected to approximate sixty per cent of earnings 16. Notes to financial statements a. Must be quantifiable b. Must qualify as an element c. Amplify or explain items presented in the body of financial statements. d. All of these are characteristics of notes to financial statements. 17. Which is incorrect regarding notes to financial statements? a. IFRS requires specific note disclosures including disaggregation of inventories into classifications such as merchandise, production supplies, goods in process, are finished goods. b. IFRS requires a maturity analysis for receivables. c. IFRS requires that all notes should be clear, simple to understand and nontechnical in nature. d. All of the choices are correct regarding notes to financial statements. 18. The disclosure of accounting policies is important to financial statement users in determining a. Net income for the year. b. Whether accounting policies are consistently applied from year to year. c. The value of obsolete ending inventory. d. Whether the working capital position is adequate for future operations. 19. Significant accounting policies may not be a. Selected on the basis of judgment b. Selected from existing acceptable alternatives c. Unusual or innovative in application d. Omitted from financial statement disclosure 20. Which of the following is not a required disclosure of accounting policies? a. The measurement basis used in the financial statements b. Key management personnel involved in preparing the summary of significant accounting policies c. Disclosures required by IFRS d. The nature of operations and the policies that the users of the financial statements would expect to be disclosed 21. The standard of adequate disclosure is best described by which of the following? a. All information related to operating objectives must be disclosed in the financial statements. b. Information about each account balance appearing in the financial statements is included in the notes to financial statements. c. Enough information should be disclosed in the financial statements in order that a prospective investor can make a wise decision. d. Disclosure of any financial facts significant enough to influence the judgment of an informed user. 22. Application of the full disclosure principle a. Is theoretically desirable but not practical because the cost of complete disclosure exceeds the benefit. b. Is violated when important financial information is buried in the notes to the financial statements. c. Is demonstrated by the use of supplementary information presenting the effects of changing prices. d. Requires that the financial statements be consistent and comparable.