Question

Describe a situation in which the information in the notes to financial statements would be essential to making an informed decision about the value of a company.

Answer 1

Breif regarding Notes to the financial statement :Financial statement notes are the supplemental notes that are added to the published financial statements of a company. The notes are used to explain further the numbers included in the financial statements, as well as the accounting policies adopted by the company. They help different types of users, such as financial analysts and investors, to interpret all the numbers added in the financial statements.
The notes are also used to make important disclosures that explain the numbers in the financial statements of a company.

Explanation:-
Let’s take an example for understanding the situation that where would be essential for a company to show the information in the notes to the financial statement:

A company which is involved in the business of Port services, to expand its business company is constructing a costal berth. This will add capacity of 2.5 million tons per annum for handling coastal cargo.

In order to give momentum to coastal shipping, Govt. of India has decided to have coastal vessel berth every major port which are to be located in the shallower portion where large international ships cannot come, to accommodate the coastal vessel wherein the cargo handling shall be free from customs and immigration formalities.

Responding to this requirement, the company has planned the coast berth for handling coastal cargo with financial assistance of Rs.25 Crs from Govt. of India and rest from internal resources of the company. Out of this Rs. 22.50 Crs. was received so far.
The work commenced on 24th April 2019 and 75% work is completed.

Company is presenting the running costal berth project in its financial statement as Capital WIP after setoff of Government Grant received.

Company should represent this type of information as notes to the financial statements would be essential to making an informed decision about the value of company.