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Ias 10 Events After The Reporting Period
Ias 10 Events After The Reporting Period
REPORTING PERIOD
Events after the reporting period are those events both favourable and unfavourable to the
entity that occur between the SFP date and the date when the financial statements are
authorised for issue. It is possible to identify two types of events
Those that provide evidence or additional information on conditions that existed at the SFP
date referred to as adjusting events after the SFP date
Those that relate to conditions that arose after the SFP date referred to as non-adjusting
events after the SFP date.
1. The settlement after the SFP date of a court case which confirm that the entity had a
present obligation at that date. The entity should adjust any previously recognised provision
related to the case according to the guidance in IAS 37 (Provisions, Contingent liabilities and
Contingent assets)
2. The receipt of information after the SFP date indicating the impairment of an asset on that
date or the need to adjust the carrying amount of the asset
3. The bankruptcy of a customer occurring after the SFP date usually confirms that a loss
existed at that date on a trade receivable and that the entity should adjust the carrying
amount of the asset.
4. The sale of inventories after the SFP date may provide evidence about their net realisable
values(NRV)
5. The determination after the SFP date of the cost of the assets purchased or proceeds from
assets sold before the SFP date
6. The determination after the SFP date of the amount of profit sharing or bonus payments if
the entity had a present legal or constructive obligation on that date to make such
payments arising from transactions or events before that date
7. The discovery of fraud or errors that show that the financial statements have significant
inaccuracies
An entity should not adjust the amount recognised in its financial statements to reflect non-
adjusting events after the SFP date. The example of such an event is a reduction of the market
value of the entity’s investment between the SFP date and the date on which the financial
Disclosure requirements
The standard provides the following examples of non-adjusting events which should be
disclosed in the SFP.
1) A major business combination after the reporting date or a disposal of a major subsidiary
2) The announcement of a plan to discontinue an operation
3) Major purchases of assets , classification of assets as held for sale, other disposals of assets
as held for sale, other disposals of assets or expropriation of major assets by government
4) Destruction of major production plant by fire after the reporting date
5) Announcing or commencing the implementation of a major restructuring exercise
6) Major ordinary shares transactions and potential ordinary share transactions after the
reporting date
7) Abnormally large change in asset prices or in foreign exchange rates after the reporting date
8) Changes in tax rates or tax laws enacted or announced after the reporting date that have
significant impact on current and deferred tax assets or liabilities
9) Entering into significant commitments or contingent liabilities e.g. issuing significant
guarantees
10) Commencing major litigation arising solely out of an event that occurred after the reporting
date
Question 1
IAS 10 Events After the Reporting Period sets out guidance for dealing with events which occur
after the reporting date but which may have implications for the financial statements up to the
reporting date. It distinguishes between adjusting events and non-adjusting events.
Gladys Ltd is in the process of finalising its financial statements for year ended 31 March 2019.
The draft statements were completed on 14 April 2019, and the audit is currently in progress.
The financial statements are expected to be approved by the board of directors on 15 May
2019, and published on 20 May 2019. The following matters have come to light during the audit
and your advice is requested. No adjustment has yet been made for any of the following.
Required:
a) Discuss the concepts of “adjusting” and “non-adjusting” events as defined by IAS 10 Events
After the Reporting Period, and explain the accounting treatment and disclosures required
in each case. (8 marks)
b) In each case (i) to (iv) above, prepare a briefing note advising on the accounting treatment
and / or disclosures required as a result of the event(s) after the reporting date. (12 marks)
Question 2
The directors of X Ltd received the financial statements for authorisation on 25 March 2015.
The Company’s financial year end is 31 December 2014. The following events occurred after the
year end
I. The selling prices of some items in X Ltd’s product range were reduced to take into account
the sales promotion of a major competitor. These reductions were effected on 10 February
2015 and were expected to cause a 20% decrease in the company’s gross profit. As a result
the company estimated that its net profit before tax for the year ended 31 December 2015
would go down by $18 500.
II. On 10 February 2015 there was a burglary at the premises and goods worth $250 000
disappeared without trace. The company was not insured for this type of risk.
a) State in each of the above cases whether an adjusting or non-adjusting event occurred
b) Explain the effect of the events on the company’s financial statements on 31 December
2014
c) Show an extract of the financial statements on 31 December 2014 taking into account the
additional information.
Additional considerations
Dividends
IAS 10 states that if an entity declares dividends after the reporting date but before the
authorisation of the financial statements for issue, these dividends should not be treated as a
liability at the reporting date. The declaration of dividends means that they have been
authorised at an appropriate level of authority and they are no longer subject at entity’s
discretion .It should be noted that dividends do not meet the criteria of a present obligation
according to IAS 37. The correct treatment is therefore not to recognise them in the statement
of changes in equity and the statement of financial position but rather to disclose them in the
notes.
Going concern
An entity’s financial statements should not be prepared on a going concern basis if
management decides after the reporting date to liquidate the entity or suspend trading or
determining that there is no realistic alternative. IAS 10 explains that deterioration in an
entity’s operations results and or financial position after the reporting date will often indicate a
need to reconsider the entity’s going concern status. If this is no longer appropriate the
standard requires a fundamental change in the basis of accounting rather than a one off
Disclosure requirements
The disclosure requirements for events arising after the reporting date are stipulated as
follows:
The date when the financial statements were authorised for issue
Who gave the authorisation
If any other party has the power to amend the statements after issue this fact should be
disclosed.
In addition if the entity receives information after the reporting date about conditions that
existed on that date it should update the related disclosures in the notes to the financial
statements. This is required even if the information has no effect on the amounts that have
been recognised in the financial statements. IAS 10 notes that if such events are material,
failure to disclose them could influence economic decisions of users of the financial statements.
Question 3
Gava Limited's financial statements for the year ended 31 December 2017 were presented to
the directors for authorisation for issue on 20 March 2018. The following events took place
after the reporting date:
1. During the auditors' performance of the debtors' circularisations on 2 January 2018, it was
discovered that an error had been made on one of the invoices sent out. The sale
transaction was recorded as $870 000 but should only have been $780 000. (8 marks)
2. On 4 February 2018 Gava Ltd received notice from Farai (Pvt.) Ltd that a dividend of 10
cents per ordinary share was declared and authorised by the annual general meeting on 31
January 2018, to shareholders registered on 31 December 2017. Gava Ltd has its issued
share capital. (4 marks)
3. On 25 February 2018 a material design defect was discovered in one of the company's new
vehicles. Production of the vehicle had commenced on 1 October 2017 and considerable
costs will have to be incurred to correct the defect.
Additional information
1) Assume a tax rate of 30%.
2) Assume that all amounts are material and that the company is a going concern
notwithstanding the effect of the above events on the financial statements.
REQUIRED:
i) Briefly discuss how the events in each of the above cases will affect the financial
statements.
ii) Prepare extracts from the financial statements of Gava Ltd as at 31 December 2017 to
disclose the relevant items so as to comply with the requirements of Statements of
Generally Accepted Accounting Practice and relevant Accounting Standards. (8 marks)
[Total: 20 marks]
Question 4
The financial statements of Matthews Ltd for the year ended 31 December 2014 were
presented to the board of directors for authorisation for issue on 30 March 2015. You are the
accountant of the company. The following events have taken place since the balance sheet
date.
1. During January 2015 a bomb exploded at one of the branches of Matthews Ltd. Damage
amounting to $200 000, $80 000 of which was for damage inventory. The company’s
insurance policy does not cover such an occurrence and the claim was repudiated by the
insurance company. A contract was concluded with Regmaak Ltd on 1 March 2015 to repair
damage to the building at a cost of $120 000. This will be financed out of surplus cash funds.
2. Jolo Ltd, a customer of the company, was placed in liquidation by its creditors on 15 January
2015. Jolo Ltd owes Matthews Ltd an amount of $40 000, which was included in debtors at
the balance sheet date. Jolo Ltd’s liquidator notified all creditors on 15 March 2015 that the
estimated liquidation dividend would be 20c in the dollar.
3. A rights issue was made on 1 February 2015 to finance the acquisition and furnishing of
office buildings. The full issues of $1 200 000 (at $12 per share) was taken up. The directors
concluded in ‘option to purchase’ in respect of office buildings during October 2014. The
rights issue was approved by the directors on 15 November 2014.
4. On 15 January 2015 a competitor sued Matthews Ltd for an infringement of patent.
Matthews Ltd appointed attorneys to defend the action. To date legal costs have already
amounted to $10 000. It is not possible to determine the cost to defend the case or its
outcome.
Required
a. Identify each of the events after the balance sheet date as either adjusting or non-adjusting
b. Briefly discuss the effect of the above mentioned event on the financial statements as at 31
December 2014.
c. Provide an extract from the financial statements of Matthews Ltd at 31 December 2014,
disclosing the results of the discussion in b) above so as to comply with Statements of
Generally Accepted Accounting Practice
Assume that all amounts are material and that the company is a going concern
notwithstanding the effect of the above mentioned events on the financial statements.
Question 5
You are the Accountant of Dondo Ltd, the parent of a diversified group with various affiliations
in commerce and industry. The financial year end of the company is 30 June 2017 and the
financial statements were presented to the board of directors for authorisation for issue on 5
September 2017. The following events have taken place:
1) On 3 July 2017, the company acquired 4 000 000 shares at 735 cents in Terrence Ltd a listed
cash shell. This shareholding represents 75.73% of the total issued share capital of the
company. Terrence Ltd is listed under the financial services sector of the Zimbabwe's Stock
Exchange and its main asset is $41 million in cash of which $8 million is due to preference
Question 6
The objective of IAS 10 Events after the Reporting Period is to prescribe the treatment of events
that occur after an entity’s reporting period has ended.
Required
Define the period to which IAS 10 relates and distinguish between adjusting and non-adjusting
events.
[5 marks]
Waxwork’s current year end is 31 March 2014. Its financial statements were authorised for
issue by its directors on 6 May 2014 and the AGM (annual general meeting) will be held on 3
June 2014. The following matters have been brought to your attention:
i. On 12 April 2014 a fire completely destroyed the company’s largest warehouse and the
inventory it contained. The carrying amounts of the warehouse and the inventory were $10
million and $6 million respectively. It appears that the company has not updated the value