Question

INTRODUCTION TO FINANCIAL MANAGEMENT QUESTION

*(INCOME STATEMENT, BALANCE SHEET, CASH FLOW STATEMENT)*

1 (a) Explain any FIVE (5) type of valuable information that may be found in the notes to financial statements.

1 (b) Describe a situation in which the information in the notes would be essential to making an informed decision about the value of a company.

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Answer 1

1.(a) five types of valuable information which may be found in notes to financial statement are as follows-

I. Methods of depreciation which has been followed by the company can be found out in notes to financial account.

II. Methods of inventory valuation such as FIFO, LIFO would be found out in notes to financial statements of the company.

III. Accounting policies which has been adopted by the company in order to prepare the financial accounts can be found out in notes to financial statements of the company.

IV. Subsequent events which are related to the business can also be found out in notes to financial statement of the company.

V. Foreign currency translation as well as transaction exposures can also be found out through notes to financial statement of the company.

1.(b) Situation in which notes to financial account would be beneficial is when there is a accounting fraud which has happened in the company and auditor would be likely to report it through notes to account because those are the suspicious events which are reported by the auditor through notes to financial accounts as company can be using the methods of window dressing in order to infinity books of account and auditor use notes to account as a tool in order to aware the investor's about investment into the company.