Comments

  1. avatar says

    Tutor,
    A receivable has been written off as irrecoverable. However the customer suddenly pays the written off amount afterreporting date. Why this is adjusting event, but it occured after reporting date?
    Thanks :)

      • Profile photo of Zeshan says

        You adjust the irrecoverable debt at the financial position date because it will no longer be receivable but like this the factory destroyed should also be adjusted

      • Profile photo of John Moffat says

        No – the factory existed at the date of the Statement of financial position. Even if we had known there was going to be a fire (which obviously we would not) there is no such thing as an allowance. With doubtful debts we make an allowance and so we would have done if we had known at the date of the statement that he was possibly going to go bankrupt.

  2. avatar says

    Declaration of equity dividends,
    Decline in market value of investements
    The announcements of changes in tax rate
    The announcement of a major restructiring

    John, why are these non adjusting events?

    • Profile photo of John Moffat says

      You have to ask yourself – if we had known the information at the date of the Statement of financial position, then would we have changed things?

      So…….if a building is destroyed later – no we wouldn’t have changed things because it existed at the date of the Statement. It is non-adjusting (but obviously we would write a note).

      If a receivable goes bankrupt later – yes we would have changed things if we had known they were going to go bankrupt (we would have either written them off as irrecoverable or created an allowance for receivables). It is adjusting.

  3. avatar says

    Hello Tutor, there is one question that i would like to ask.

    If a customer encountered a significant loss from a fire accident after the balance sheet date and is in the process of filling for bankruptcy , do we need to adjust the entries? The customer still owed the company an amount of 278000

  4. avatar says

    Sir, In lecture of adjusting event, as you mention that if Fire destroy inventory after year end,and before authorized, it does not need to be adjusted because this event happen after year ending. So, how come, when trade receivable went to bank corrupt after year end need to be adjusted as person x was Trade Receivable at the year end and event of bank-corruptly happen after year end. Please give me advise for the same.

    • Profile photo of John Moffat says

      You have to ask yourself the question: if we had known about the event at the date of the Statement of financial position, would we have changed things?

      If we had known the building was going to be destroyed by fire, then we would not have changed things because it did exist at the date of the statement. Assuming it was material, we would however have written a note with the accounts stating what happened.

      However, if we had known at the date of the statement that the receivable was going to go bankrupt, then we would have either written it off as irrecoverable (or at the very least created an allowance for receivables as it being doubtful).

  5. avatar says

    Sir please i don’t understand how the answer is B. i though it was c
    IAS 10 Events after the reporting period regulates the extent to which events after the reporting period
    should be reflected in financial statements.
    Which one of the following lists of such events consists only of items that, according to IAS 10, should
    normally be classified as non-adjusting?
    A Insolvency of an account receivable which was outstanding at the end of the reporting period,
    issue of shares or loan notes, an acquisition of another company
    B Issue of shares or loan notes, changes in foreign exchange rates, major purchases of non-current
    assets
    C An acquisition of another company, destruction of a major non-current asset by fire, discovery of
    fraud or error which shows that the financial statements were incorrect
    D Sale of inventory which gives evidence about its value at the end of the reporting period, issue of
    shares or loan notes, destruction of a major non-current asset by fire

  6. avatar says

    Just as the receivables example though it was found out later the accounts were changed

    So what about the factory fire it was found out later before they were published and even the amount was material

    So why didn’t we adjust it ??

    THANK YOU

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  8. avatar says

    Hello Tutor,

    Can you please explain example 3 about inventory from this lecture?
    As per your example, the value of and item in the inventory as at 31.12.08 was $100,000. However, the item was then sold for $40000 on 05.01,09.

    Is it not a transaction for the year 2009? As at 31.12.08 the value was $100,000 only? Then why this needs to be adjusted?
    Thanks.

    PS: I love all your lectures. They are brilliant stuff. Great work.

    • Profile photo of John Moffat says

      Inventory should be valued at the lower of cost and net realisable value. Since we found out only 5 days after the year end that its sales value was only $40,000, it is an adjusting event and so we should change the value of the inventory – its sales value was only 40,000 at the year end (even though we only found out later).

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