NOTES TO FINANCIAL STATEMENT

INTERMEDIATE ACCOUNTING III

 NOTES TO FINANCIAL STATEMENT

 One of the components of a complete set of financial statements. PAS 1 provides the guidelines and mechanics for
proper preparation and preparation and presentation of notes.
 Contain information in addition to the presented in the statement of financial position, statement of comprehensive
income, statement of changes in equity and statement of cash flow.
 Provide narrative descriptions or dis- aggregations of item of items in those statements and information about
items that do not qualify for recognition in those statements.
 The primary objective of which, therefore, is to enhance the requirement of complete disclosure.
OBJECTIVE

 1. To present information about the basis of preparation of the financial statements and the specific accounting
policies used.
 2. To disclose the information required by PFRS that id not presented in the financial statements.
 3. To provide additional information that is not presented in the financial statements, but is relevant to an
understanding of any of them.
STRUCTURE

 Notes are normally presented in the following order to assists user in understanding the financial statements and
comparing them with financial statements of other entities:

 a. A statement of compliance with PFRS.

 b. A summary of significant accounting policies applied.
 c. Supporting information for items presented in the financial statements in the order in which each statement
and each line item is presented.
 d. Other disclosures including contingent liabilities, unrecognized contractual commitments and non-financial
disclosures like entity’s financial risk management objectives and policies.
STATEMENT OF COMPLIANCE

 An entity whose financial statements comply with PFRS shall make an explicit and unreserved statement of such
compliance in the notes.

 Financial statements shall not be described as complying with Philippine Financial Reporting Standards unless
they comply with all the requirements of PFRSs.
 In some circumstances, it may be necessary or desirable to vary the ordering of specific items within the notes.
For example, information on changes in fair value recognized in income or loss may be combined with
information on maturities of financial instruments, although the former disclosures relate to the income statement
and the latter relate to the balance sheet.
STATEMENT OF COMPLIANCE - SAMPLE

 The financial statements of Southern Christian College, a non-stock, non-profit educational institution, for the
year ended December 31, 2015 complied fully with the reportorial requirements of the accounting standards.
 Note shall appear as follows :
 The accompanying financial statements have been prepared in accordance with the Philippine Financial Reporting
Standards. The accounting policies have been applied consistently and conform in all material respects with the
Standards.
 The School has adopted all relevant and applicable accounting standards, including interpretations to existing standards,
which are mandatory for all entities beginning on or after January 1, 2005.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICY USED

 In deciding whether a particular accounting policy should be disclosed, management considers whether disclosure
would assist users in understanding how transactions, other events and conditions are reflected in the reported
financial performance and financial position.

 Disclosure of particular accounting policies is especially useful to users when those policies are selected from
alternatives allowed in Standards and Interpretations.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICY USED

 An entity shall disclose in the summary of significant accounting policies:

a. the measurement basis (or bases) used in preparing the financial statements; and
b. the other accounting policies used that the relevant to an understanding of the financial statements.
* It is important for users to be informed of the measurement basis or bases used in the financial statements
because the basis on which the financial statements are prepared significantly affects their analysis.
The different measurements bases employed in the preparation of the financial statements are historical cost,
current cost, net realizable value and present value.
When more than one measurement basis is used in the financial statements, for example when particular classes
of assets are revalued, it is sufficient to provide and indication of the categories of assets and liabilities to which each
measurement basis is applied.
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICY USED

 An entity shall disclose in the summary of significant accounting policies the judgments apart from those involving estimations
management has made in the process of applying the entity’s accounting policies that have the most significant effect on the
amounts recognized in the financial statements.
 In the process of applying the entity’s accounting policies, management makes various judgments, apart from those involving
estimations, that can significantly affect the amounts recognized in the financial statements.
 For example, management makes judgments in determining:

a. whether financial assets are held-to-maturity investments;

b. when substantially all the significant risks and rewards of ownership of financial assets and lease assets are transferred to other
entities.
c. whether, in substance, particular sales of goods are financing arrangements and therefore do not give rise to revenue; and
d. whether the substance of the relationship between the entity and a special purpose entity indicates that the special purpose entity
is controlled by the entity.
SAMPLE OF SAP

NOTES 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 Basis of accounting. The financial statements have been prepared on the basis historical cost conventions except for property and equipment which are carried at
revalued amounts. The financial statements are presented in Philippine peso, which is the functional currency of the School. All values are recorded to the nearest
Philippine peso except when otherwise indicated.
 Cash and cash equivalents. Cash and cash equivalents are carried in the balance sheet at face value which serves as the cost. Cash and cash equivalents comprise cash on hand, deposit
held at call with banks, and time deposits with banks that can be pre-terminated anytime.
 Trade and other receivables. Receivable from students arising from tuition and fees and receivables from officers and employees and other debtors are carried at their original
assessments less provision made for impairment of these receivables. A provision for impairment of these receivables is established where there is objective evidence that the School
would not be able to collect the amounts due according to the original terms of receivables.
 Inventories. Inventory of textbooks and supplies are stated at the lower of cost or net realizable value determined by the first-in, first-out method.
 Property and equipment. The property and equipment are carried at revalued amounts less accumulated depreciation and any impairment in value, if any. An independent firm of
appraisers undertook the property revaluations on January 24, 200. The net appraisal increment resulting from the revaluation of the properties was credited to “Revaluation Increment
in Property and Equipment” shown under the Fund Balances caption in the balance sheet. Subsequent acquisitions were carried at cost less accumulated depreciation. Depreciation on
cost and on appraisal increase is computed on the straight-line method over the estimated useful lives of the properties as follows: (a) buildings and improvements - 10 to 25 years, (b)
furniture, fixtures and equipment - 3 to 5 years, (c) transportation equipment -10 years, (d) library books and references - 3 to 5 years, and (e) land is not depreciated.
 Donations received. Expenses paid for by funds from the Special Funds accounts are recorded in the books with corresponding credits to Donation Income account. Likewise, capital
expenditures obtained with funds from the Special Funds accounts are recorded in the books with corresponding credits to Donated Capital account. Donations from all resources are
valued at cost or fair market value whichever is higher at the time the donations are received.
SUPPORTING INFORMATION FOR ITEMS PRESENTED ON FACE OF
FINANCIAL STATEMENTS

 The elements comprising the line items that appear in the financial statements are disclosed in the notes
SAMPLE
The following notes support the various line items appearing on
face of the financial statements of Southern Christian College
for year 2015
OTHER DISCLOSURE

 An entity shall disclose in the notes:

a. the amount of dividends proposed or declared before the financial statements were authorized for issue but not recognized
as a distribution to equity holders during the period, and the related amount per share; and
b. the amount of any cumulative preference dividends not recognized.

Also, an entity shall disclose the following if not disclosed elsewhere in information published with the financial
statements:
a. the domicile and legal form of the entity, its country of incorporation and the address of its register office (or principal
place of business, if different from the registered office);
c. a description of the nature of the entity’s operation and its principal activities; and
d. the name of the parent and the ultimate parent of the group
SAMPLE