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  1. What is the treatment of
    1. A major business combination after the reporting date? and
    2. Completion of the purchase of another company?

  2. The Reciept Of Proceeds of sale or other evidence concerning the net realisable value of inventory .Is it a adjusing or non adj. event? And elaborate.

  3. Hello. I’d like to ask something related to this topic of subsequent events. In normal practice accrued expenses are adjusted when vendor invoices are received before publishing the statements. Is this also because of IAS 10? I guess so, because the received invoice provides further evidence to expenses relating to the previous accounting period.

    However, do adjusting events always have to lead to adjusting books of a previous period even if the amount is really insignificant (say 5 EUR) and not adjusting the accounts would not result in the users of financial statemnts being misled? Can the cost/benefit approach be applied here? I wonder if there is any document dealing with further interpretations of this standard reflecting the common practice, possibly with auditors’ point of view.

    Thank you.

    Martin

    • In future please ask this sort of question in the Ask the Tutor Forum, rather than as a comment on a lecture 馃檪

      In relation to your first question, it is not because of IAS10 – it is simply because we want the accrual to be as accurate as possible.

      As far as your second question is concerned, I do say in the lectures that we only bother for amounts that are material. For accounting there is no definition of what is material – it depends on various factors – the amount of the profit, the amount of the item concerned etc.. For auditors there is a more precise definition (but not related to events after the reporting period – more to whether or not errors need reporting), but this is not relevant to F3.

  4. If in example 5 of the adjusting and non-adjusting events the new shares issued were 500,000 at 0.25c each or 0.50 each would you still disclose it ? how can I tell if it is material or not as I don鈥檛 know how big the company I鈥檓 refering to is ?

    • In practice we obviously know how big the company is.
      In the exam then either it will be a very big number (I think you would agree that in example 5, $1M is likely to be big for any company), or you would be given more information about the company.
      (There is no precise definition of ‘material’ in financial accounts)

    • Thanks for the quick reply, just want some clarification… this was the specific question i was referring to

      “You have been appointed the external auditor of . TNH鈥檚 LTD. Their financial year ended on 30 June 2012 .On 5th July 2012, one of TNH鈥檚 debtors is declared bankrupt.The sale had taken place in June 2012. Following preliminary investigation the liquidator announced that the debtor鈥檚 assets are sufficient to repay all debts and payment will be made within 60 days

      So this would be a non-adjusting event, because although the condition existed at balance day and it was discovered after balance day.. the fact it doesn’t actually change the amount owed it why it is a Non-adjusting event. Am i right in saying that?

      Thanks a lot for the help

    • I really do explain this in the lecture with examples and it is difficult to say more.

      Adjusting events are ones for which we change the accounts because it affects the position at the reporting date.

      Non-adjusting events do not affect the position at the reporting date and therefore we do not change the accounts.

  8. 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 馃檪

      • 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

      • 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.

  9. 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?

    • 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.

  11. 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

  12. 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.

    • 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).

      • waooooo so amazing even LSBF did not explain this better to me. out of 5 diff. materials i use. only open tuition made this topic a HIT for me

  13. 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

  14. 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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  16. 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.

    • 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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