Chapter 4:

Exercise 4.1 Entity A was sued in 01. On Dec 31, 01, it is not clear whether the probability of
conviction in the ongoing trial is more than 50%. Shortly after Dec 31, 01, A is convicted.

1. Entity B holds a receivable which is measured at amortized cost according to IFRS 9.

Shortly after the reporting period, the debtor files for bankruptcy.3
2. In 01 and 02, Entity C carries out a construction contract. By Dec 31, 01, contract costs
of CU 12 have been incurred. Total contract revenue is CU 30. The stage of completion
is calculated according to the cost-to-cost method (IAS 11.30a). In Jan 02, the estimate of
total contract costs is revised from CU 20 to CU 24. The reason for this revision is an
increase in prices at commodity exchanges in Jan 02.
3. In Jan 02, part of the manufacturing facilities and inventories of entity D is destroyed
by a flood. The damages are not covered by insurance. However, D’s management
expects that it will be possible to continue the business activities.
4. In Jan 02, the entire manufacturing facilities and inventories of entity E are destroyed
by a flood. Because the damages are not covered by insurance, there is no realistic
alternative for E but to cease its business activities.
Required

Illustrate the effects of the events after the reporting period (IAS 10.3) described above on the
recognition and measurement in the financial statements of entities A–E as at Dec 31, 01.

Exercise 4.2 Which of the following events after the reporting period provide evidence of
conditions that existed at the end of the reporting period?

(a) Closure of one of fifteen retail outlets

(b) Discovery of a fraud
(c) Sales of inventories at less than cost
(d) Exchange rate fluctuations
(e) Nationalisation or privatisation by government
(f) Out of court settlement of a legal claim
(g) Rights issue of equity shares
(h) Strike by workforce
(i) Earthquake.
(j) Announcing a plan to discontinue on operation