ACCA Applied Knowledge · Financial Accounting
Disclosure Notes for ACCA Financial Accounting
Disclosure notes are the extra information that sits behind the numbers in the statement of financial position and statement of profit or loss. They explain accounting policies, break down balances and report uncertain items. To solve questions, identify the standard, apply its recognition rule, then pick the correct note treatment.
What this chapter covers
Notes to the financial statements give users the detail the primary statements cannot show. They state the accounting policies used, break down figures such as property, plant and equipment, and report items that need explanation, like provisions, contingent liabilities and events after the reporting period.
This chapter covers the notes you are most likely to meet in the Financial Accounting exam: the structure of the notes, the non-current asset notes (PPE and intangibles), share capital, reserves and dividends, IAS 37 and IAS 10. Most of it is about deciding between three outcomes: adjust the figures, disclose in a note, or do nothing.
The chapter connects to almost every other part of the paper. The PPE note uses your depreciation, revaluation and disposal work. The equity notes link to share issues and dividends. IAS 37 and IAS 10 feed directly into the accounts preparation and consolidation questions in Section B, where a single adjustment can change profit and a liability. In Section A, these topics come up as short objective test questions.
Disclosure questions are quick marks if you know the rules, because each one usually turns on a single test: is there a present obligation, is an outflow probable, was the event adjusting or non-adjusting, is the cost capitalisable. The same knowledge also helps in the 15-mark accounts preparation question, where you must produce correct figures and notes. Students lose marks here by guessing instead of applying the test, so a small amount of focused practice pays back well across the whole exam.
Disclosure notes: topics in the order to study them
- 1Purpose and Structure of Notes to Financial StatementsStart here to see what notes are for and how they fit with the primary statements before learning individual notes.
- 2Property, Plant and Equipment Disclosure NoteIt is the most common note and builds on depreciation, revaluation and disposals you already know, so it is a safe second step.
- 3Intangible Assets and Other Asset DisclosuresIt follows the PPE note closely, with the extra rules on research, development and amortisation.
- 4Share Capital, Reserves and Dividends NotesThis moves from assets to equity, using the share issue and dividend entries you have already practised.
- 5IAS 37 Provisions, Contingent Liabilities and Assets DisclosureIt introduces the recognise, disclose or ignore decision, which you need before tackling events after the reporting period.
- 6IAS 10 Events After the Reporting PeriodLast, because it reuses the idea of evidence at the reporting date and often overlaps with IAS 37 in questions.
How to prepare Disclosure notes
Treat this chapter as a set of decision rules plus a few note layouts. Learn the rule first, then practise applying it fast, since the exam is computer-based and timed.
- Read the purpose of the notes and list which statements each note supports, so the layouts make sense.
- Learn the PPE note as a reconciliation: opening balance, additions, revaluation, disposals, closing balance, for both cost and depreciation. Practise until you can build it from a short data set.
- Write out the intangible rules in your own words: research is expensed, development is capitalised only when criteria are met, and capitalised assets are amortised.
- Practise share capital and dividends entries, noting that a dividend is a liability only once declared. A bonus issue capitalises reserves (share premium or retained earnings) into share capital with no cash received. A rights issue raises cash, with the excess over nominal value credited to share premium.
- Memorise the IAS 37 grid: present obligation from a past event, probable outflow and reliable estimate means provision; possible outflow means contingent liability note; remote means nothing. A contingent liability is disclosed unless the possibility of an outflow is remote. A contingent asset is disclosed when an inflow is probable. When the inflow is virtually certain, it is not a contingent asset and you recognise it as an asset.
- Sort IAS 10 examples into adjusting (evidence of conditions at the reporting date) and non-adjusting (conditions arising afterwards), and do timed objective questions mixing both standards.
- Finish with a full accounts preparation question and check that every note ties back to the primary statements.
Common mistakes in Disclosure notes
Recognising a provision for a future operating loss or for an obligation that does not yet exist.
Fix: Ask first whether there is an obligation at the reporting date from a past event. If not, no provision.
Treating all events after the reporting period as adjusting, or all as non-adjusting.
Fix: Ask whether the event gives more evidence of a condition that existed at the year end. If yes, adjust; if it arose later, disclose only.
Accruing a dividend that was declared after the year end.
Fix: Only dividends declared on or before the reporting date are liabilities. Later ones are non-adjusting events.
Capitalising all development spending or any research spending.
Fix: Check that every criterion is met before capitalising. Expense research costs in all cases.
Building the PPE note with the wrong sign or mixing cost and depreciation columns.
Fix: Work cost and depreciation separately, then compute the carrying amount as cost less accumulated depreciation and check it against the statement of financial position.
Disclosing a contingent liability when the chance of outflow is remote, or recognising it when it is only possible.
Fix: Use the grid: probable outflow from a present obligation that can be reliably estimated means provision; a possible obligation, or one that cannot be measured reliably, means disclose; remote means ignore.
Last-day revision: Disclosure notes
- Notes give accounting policies, breakdowns of figures and extra information on uncertain items.
- The PPE note reconciles cost and accumulated depreciation from opening to closing balance.
- Land is not depreciated; buildings and equipment are depreciated over their useful lives.
- Research costs are always expensed; development costs are capitalised only when all criteria are met.
- Capitalised intangibles with finite lives are amortised; goodwill is not amortised under IFRS.
- Revaluation gains go to OCI and the revaluation surplus, except to the extent they reverse an earlier revaluation loss on the same asset that was charged to profit or loss; that part is recognised in profit or loss.
- A dividend is recognised as a liability only when declared; a proposed final dividend after the year end is not a liability.
- IAS 37 provision needs a present obligation, a probable outflow and a reliable estimate.
- Possible obligations are contingent liabilities: disclose them, do not recognise them; remote ones need no disclosure.
- A contingent asset is disclosed when an inflow is probable. When the inflow is virtually certain it is not a contingent asset and is recognised as an asset.
- Adjusting events give evidence of conditions at the reporting date and change the figures.
- Non-adjusting events arise after the reporting date: disclose them if material, do not change the figures.
Disclosure notes practice questions
- At the reporting date Bram Co has won a court case and is virtually certain to receive $200,000 in compensation from a supplier, with the re…
- At 1 January a company's property, plant and equipment note showed cost $620,000 and accumulated depreciation $240,000. During the year it b…
- Which of the following is correct about the disclosure of property, plant and equipment under IAS 16 for each class of asset?
- Doran Co's year end is 31 March 20X6 and its financial statements were authorised on 30 June 20X6. A court case was pending at the year end …
- Dalton Co revalued its land from a carrying amount of $400,000 to $520,000 during the year, the first revaluation. The land was bought earli…
- Vale Co has a 31 December 20X5 year end; financial statements were authorised on 28 February 20X6. Trade receivables were $400,000 before an…
- Zeta Co is defending a legal claim. Its lawyers advise that it is possible, but not probable, that the company will lose and have to pay dam…
- Ferris Co's machinery had a cost of $250,000 and accumulated depreciation of $100,000 at 1 January. It depreciates machinery at 20% per year…
Disclosure notes in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Disclosure notes: frequently asked questions
What are disclosure notes in ACCA Financial Accounting?
They are the explanatory information that accompanies the primary financial statements. They cover accounting policies, breakdowns of balances such as PPE and share capital, and uncertain items like provisions and events after the reporting period.
How are disclosure notes tested in the FA exam?
In Section A they appear as short objective test questions, usually multiple choice, multiple response or number entry. They also matter in the 15-mark accounts preparation question, where your adjustments and note figures must agree with the primary statements.
What is the difference between a provision and a contingent liability?
A provision is recognised in the statements because there is a present obligation, a probable outflow and a reliable estimate. A contingent liability is only a possible obligation, or one that cannot be measured reliably, so it is disclosed in the notes instead.
How do I tell an adjusting event from a non-adjusting event?
Ask whether the event provides evidence of a condition that existed at the reporting date. If it does, it is adjusting and you change the figures. If the condition arose after the reporting date, it is non-adjusting and you only disclose it when material.