BBFA 2203

TOPIC 4 :
EVENT AFTER
BALANCE SHEET
DATE
 APPLICATION OF MFRS 110

– MFRS 110 defines events after balance sheet date as „those events, both
favourable and unfavourable, that occur between the balance sheet and
the date when the financial statements are authorised for issue”
– MFRS 110 identifies two types of events:
(a) Those events that provide further evidence of conditions that existed at
the balance sheet date (adjusting events after the balance sheet date); and
(b) Those are indicative of conditions that arose after the balance sheet date
(non-adjusting events after the balance sheet date).
ADJUSTING EVENTS
(a) Measurement of Bad and
Doubtful Debts
– The entity normally provides for doubtful debts from past experience. This
should be adjusted if it is an event after the balance sheet date. For example, if
a customer faces bankruptcy after the balance sheet date, it will affect trade
receivables; thus, the entity should adjust the carrying amount of trade
receivables.
(b) Net Realisable Value of
Inventory Determination
– The carrying value of inventory is compared to its net realisable value at the end
of the financial year. The net realisable value is the estimated selling price less
the costs necessary to make the sale. The sale of inventory after the balance
sheet date will show the net realisable value at the balance sheet date. If the
carrying value is less than the net realisable value, the entity needs to disclose
the carrying value.
(c) Court Case
– Contingent liability may arise due to existence of litigation at the end of the
year. Contingent liability at times can be determined or sometimes cannot be
determined. In this case, a disclosure is made due to contingent liability but the
amount is indeterminable.

(d) Impairment of Asset

– Assets are reviewed for impairment at the balance sheet date. There might be
impairment or no impairment. If an asset was impaired at the balance sheet
date, after the balance sheet date, the entity is required to make adjustments.
(e) Acquisition or Disposal of Assets
– The determination after the balance sheet date of the cost of assets purchased,
or the proceeds from assets sold before the balance sheet date are adjusting
events.

(f) Profit Sharing or Bonus

- If the entity had to make these payments as a result of events before that date
and the amount was determined after the balance sheet date, the amount
should be recognised for the year. Thus, adjustments are needed.

(g) Fraud
- Adjustments are to be made if there is fraud or errors are found that show
financial statements are incorrect.
 NON-ADJUSTING EVENTS

– Non-adjusting events do not affect financial

performance during the period in question.
– (a) A major business combination after the balance sheet date or disposal of a major
subsidiary.
– (b) Announcing a plan to discontinue an operation, disposing of assets or settling
liabilities attributable to a discontinuing operation or entering into binding
agreements to sell such assets or settle such liabilities.
– (c) Major purchases and disposals of assets or expropriation of assets by the
government.
– (d) The destruction of a major production plant by a fire after the balance sheet date.
– (e) Commencing or announcing major restructuring.
– (f) Major ordinary share transactions and potential ordinary share transaction
after the balance sheet date.
– (g) Abnormally large charges after the balance sheet date in asset prices or foreign
exchange rates.
– (h) Changes in tax rates or tax laws enacted or announced after the balance sheet
date that have significant effect on current and deferred tax assets and liabilities.
– (i) Entering into significant commitments or contingent liabilities.
– (j) Commencing major litigation arising solely out of events that occurred after the
balance sheet date.