Events after the end of

IAS 10 reporting period 09

TIME DURATION |1

From To
End of the reporting period The date when FS are
(Year-end) authorised for issue by
management
Events after the reporting period
(both favourable and unfavourable events are included)

Illustration
The management of an entity completes draft financial statements for the year to 31
December 2011 on 28 February 2012. On 18 March 2012, the board of directors reviews the
financial statements and authorises them for issue. The entity announces its profit and
selected other financial information on 19 March 2012. The financial statements are made
available to shareholders and others on 1 April 2012. The shareholders approve the financial
statements at their annual meeting on 15 May 2012 and the approved financial statements
are then filed with a regulatory body on 17 May 2012. (IAS 10)

The financial statements are authorised for issue on 18 March 2012 (date of board
authorisation for issue).
TYPES OF EVENTS
Adjusting events Non – adjusting events
those that provide evidence of conditions those that are indicative of
Definition that existed at year end conditions that arose after the year
end
adjust the amounts recognised in financial not adjust the amounts recognised
statements to reflect adjusting events in financial statements. However,
Treatment
nature and financial effect is
disclosed, if material.
 Settlement of court case pending at  Decline in market value of
year end investments due to
 Information received that a customer circumstances that have arisen
was bankrupt at year end after the year end.
 Evidence found regarding NRV of  Any loss caused solely due to
inventories at year end event happened after year end.
Examples  Determination of cost or disposal
proceeds for assets purchased or sold
before year end
 Determination of amount of profit
sharing or bonus as a result of events
occurred before year end
 The discovery of fraud or errors
 ICMAP M4 Financial Accounting

QUESTION 01
ABC Limited is in the process of finalizing its financial statements for the year ended June
30, 2011. The intended date of authorisation of financial statements is September 15, 2011.
The following events have happened since June 30, 2011.
(a) On July 12, 2011 information was received that a foreign customer had gone into
liquidation in May 2011. There are no chances of recovery of this debt now.
2| (b) On August 15, 2011 the company sold 1,000 units of Product B for only Rs. 12 per
unit due to damage caused by water spoilage on August 05, 2011. The cost per unit
was Rs. 20. However, this Product had been valued at its NRV of Rs. 15 per unit on
June 30, 2011.
(c) An asset was purchased and installed on June 27, 2011. However, invoice has been
received on 5th July 2011.

Required:
Classify the above events after the reporting period as adjusting or non-adjusting.

SPECIAL CASES
Always treat as a non-adjusting event
If dividends are declared after the reporting period but before the financial
Proposed
statements are authorised for issue, the dividends are not recognised as a
dividends
liability at the end of the reporting period because no obligation exists at that
time. Such dividends are disclosed in the notes in accordance with IAS 1.
Always treat as an adjusting event
No Longer An entity shall not prepare its financial statements on a going concern basis if
a Going management determines after the reporting period either that it intends to
concern liquidate the entity or to cease trading, or that it has no realistic alternative but
to do so.

QUESTION 02
Consider the following issues:
(a) N Limited board of directors announced the dividend for its ordinary shareholders of
Rs. 0.20 per share on January 09, 2012 from the profits for the year ended
December 31, 2011.
(b) F Limited is in the course of finalizing its financial statements for the year ended June
30, 2010. Due to international recession the company has lost its major customers.
The company now intends to cease its business and liquidate the company.

Required:
Discuss the effect of above on the financial statements of each company.

QUESTION 03 Tentacle – J07

In the post SFP period, prior to authorising for issue the financial statements of Tentacle for
the year ended 31 March 2007, the following material information has arisen:
(i) The notification of the bankruptcy of a customer. The balance of the trade receivable
due from the customer at 31 March 2007 was Rs. 23,000 and at the date of the
notification it was Rs. 25,000. No payment is expected from the bankruptcy
proceedings. (3 marks)

(ii) Sales of some items of product W32 were made at a price of Rs. 5·40 each in April
and May 2007. Sales staff receive a commission of 15% of the sales price on this
product. At 31 March 2007 Tentacle had 12,000 units of product W32 in inventory
included at cost of Rs. 6 each. (4 marks)

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 Class Notes

(iii) Tentacle is being sued by an employee who lost a limb in an accident while at work
on 15 March 2007. The company is contesting the claim as the employee was not
following the safety procedures that he had been instructed to use. Accordingly the
financial statements include a note of a contingent liability of Rs. 500,000 for
personal injury damages. In a recently decided case where a similar injury was
sustained, a settlement figure of Rs. 750,000 was awarded by the court. Although the |3
injury was similar, the circumstances of the accident in the decided case are different
from those of Tentacle’s case. (4 marks)

Required:
State and quantify how items (i) to (iv) above should be treated when finalising the
financial statements of Tentacle for the year ended 31 March 2007. (11 marks)

QUESTION 04 Waxwork – J09

Waxwork’s current year end is 31 March 2009. Its financial statements were authorised for
issue by its directors on 6 May 2009 and the AGM (annual general meeting) will be held on 3
June 2009. The following matters have been brought to your attention:
(i) On 12 April 2009 a fire completely destroyed the company’s largest warehouse and
the inventory it contained. The carrying amounts of the warehouse and the inventory
were Rs. 10 million and Rs. 6 million respectively. It appears that the company has
not updated the value of its insurance cover and only expects to be able to recover a
maximum of Rs. 9 million from its insurers. Waxwork’s trading operations have been
severely disrupted since the fire and it expects large trading losses for some time to
come. (4 marks)
(ii) A single class of inventory held at another warehouse was valued at its cost of Rs.
460,000 at 31 March 2009. In April 2009 70% of this inventory was sold for Rs.
280,000 on which Waxworks’ sales staff earned a commission of 15% of the selling
price. (3 marks)
(iii) On 18 May 2009 the government announced tax changes which have the effect of
increasing Waxwork’s deferred tax liability by Rs. 650,000 as at 31 March 2009.
(3 marks)

Required:
Explain the required treatment of the items (i) to (iii) by Waxwork in its financial
statements for the year ended 31 March 2009.

QUESTION 05 PE November 2013 Q4 (a)

Define Adjusting Events giving at least four examples. (05)

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