CHAPTER 12: EVENTS AFTER REPORTING PERIOD CFAST - MIDTERMS

TYPES OF EVENTS Example: Adjusting Events

75 Ltd is a producer and distributor of tea. The company’s year
ADJUSTING NON-ADJUSTING ended is 31 December. The directors of 75 ltd are due to sign the
EVENTS EVENTS company’s financial statements for the year ended 31 December on 5
Events after the reporting date and Event after the reporting date March. The following information is available:
before the date of authorization of and before date of authorization
the financial statements that of financial statements that is
1. Flavored tea is included in year-end inventory at its original
provides evidence of conditions indicative of conditions that
cost of P12,000,000. Audit work carried out in February 2024
that existed at the reporting date. arose after the reporting date.
indicated that the tea was sold for P10,000,000 in January 2024
due to a fall in demand for such products during 2023.
❖ IAS 10 states that where there ❖ No adjustment required to
is a material adjusting event, amounts recognized in the 2. During 2023 there had been industrial unrest amongst 75 Ltd
the financial statements must be financial statements but production workers following automation of one of the
changed to reflect this event. possible disclosure. manufacturing processes. Management had sought to make
20% of the workforce redundant. In February 2024, following
protracted negotiations it was agreed that 15% of the workforce
ADJUSTING EVENTS AFTER REPORTING PERIOD would be made redundant at a cost of P400,000.
1. Finding out the actual cost or money made from buying or selling assets
before the end of the reporting period. 3. On 31 January 2024, P2,500,000 was paid to Trevor Baggins as
compensation for his removal of Managing Director. Mr.
2. Checking a property and finding that its value has gone down Baggins has been dismissed by the Chairman at the December
(diminution) permanently. 2023 Board Meeting as a result of a serious disagreement over
3. Receipt of information after the reporting period that an asset was worth marketing strategy for 2023.
less than we thought or that previous impairment was not adequate.
4. It was discovered in January 2024 that a long serving employee
4. Sales of inventory after the reporting period, which shows their Net
had systematically stolen P25,000,000 over the previous four
Realizable Value (NRV) at the end of the reporting period.
years. Material errors had thus been made in the financial
5. Renegotiating with debtors or finding out they can't pay their debts statements over those years and there is now no chance of
(insolvency). recovery.
6. A debtor going bankrupt after the reporting period confirms a loss on
trade receivables existed at the end of the reporting period.
7. Receiving money from insurance claims that were still being discussed at
the end of the reporting period.
8. Discovery of errors or frauds which show the financial statements were
incorrect
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CHAPTER 12: EVENTS AFTER REPORTING PERIOD
Issue 1: Inventory is valued at the lower of cost and net realizable value
(IAS 2 Inventories – See Chapter 11). Demand fell during 2023 and the sale
in January 2024 provides evidence of conditions that existed at the
reporting date. Therefore, it is an adjusting event.
Dr SPLOCI – P/L – Cost of goods gold P2,000,000
Cr SFP – Inventory P20,000
Issue 2: This is an adjusting event. The redundancy conditions existed at the
reporting date and the final agreement merely settled the terms. Given its
nature, it might be considered an exceptional item.
Dr SPLOCI – P/L – Redundancy costs P400,000
Cr SFP – Restructuring provision P400,000
Issue 3: The dismissal of Mr. Baggins took effect before the end of
Therefore the compensation payment is an adjusting event in the 2023
financial statements.
Dr SPLOCI – P/L – Termination costs P2,500,000
Cr SFP – Other payables P2,500,000
Issue 4: The discovery of errors/fraud that existed/occurred prior to the end
of the 2023 reporting period is an adjusting event.
NON-ADJUSTING EVENTS AFTER REPORTING PERIOD
Do not result in changes to the amounts recognized in the FS. They may,
however, be of such materiality that their disclosure is required to ensure that
the FS are not misleading.
If material, disclose for each material category of non-adjusting event after
the reporting date:
• Nature of the event;
• Estimate of the financial effect, or a statement that is not practicable to
make such an estimate; and
• Estimate of the financial effect should be disclosed before taking account
of taxation; and the taxation implications should be explained where
necessary for a proper understanding of the financial position.
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CFAST - MIDTERMS
EXAMPLE: Non-Adjusting Events
Pinewood Limited is a furniture manufacturing company. The
company was informed on February 1, 2024 that one of its major customers,
Cushion Limited, had gone into liquidation. The liquidator indicated that no
payments would be made to unsecured creditors. The amount owed by
Cushion Limited on February 1, 2024 amounted to P55,000, of which
P30,000 related to goods invoiced on December10, 2023 and P25,000 to
goods invoiced on January 15, 2024.
Explain how the above item would be dealt with in the financial
statements of Pinewood Limited for the year ended December 31, 2023.
Solution
• As the liquidation occurred after the reporting date, it is dealt with in
accordance with IAS 10
• The liquidation is an adjusting event
• The amount of the adjustment in the 2023 financial statements is
limited to P30,000 (i.e. the amount outstanding at the reporting date)
• If the additional amount of P25,000 is deemed to be material, it
should be disclosed by way of note.
Going concern issues arising after the end of the reporting period.
An entity should not prepare its financial statements on a going concern
basis if management determines that after the reporting period either:
• that it intends to liquidate the entity or to cease trading; or
• that it has not realistic alternative but to do so.
CHAPTER 12: EVENTS AFTER REPORTING PERIOD CFAST - MIDTERMS

Proposed Dividends

• To accrue dividends at the reporting date they must have been

approved by shareholders at the Annual General Meeting prior to the ✓ Dividends proposed/declared after the end of the reporting period do not
reporting date. meet the definition of a liability at the end of the reporting period and
should not be accrued in the FS.

• If the dividends are proposed by the directors before the reporting
date but the AGM does not take place until after the reporting date
then the dividend cannot be accrued, but must be disclosed in the
notes to the financial statements.
• Equity dividends declared after the end of the reporting period are not
a liability as at the end of the reporting period. These dividends
should be disclosed in a note to the financial statements as a
contingent liability.
✓ Dividends due from subsidiaries are not income in parent’s individual
accounts if declared after the end of the reporting period.
Disclosure
In addition to the disclosures mentioned previously for non-adjusting
events, the following must also be disclosed:
• Date of authorization of the financial statements
• Who gave authorization
• If the owners or others have the power to amend the financial
statements after issue, this must be disclosed

ADJUSTING EVENTS NON-ADJUSTING

EVENTS

ADJUST FINANCIAL
DISCLOSURE ONLY
STATEMENTS

NESHL ANGELISSE BALACANTA BSA 1B