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Hi, sir hope you will be in good health..sir i am facing a lot of confusion with respect to IAS 10.
Firstly, can you please tell me about adjusting and non adjusting event in simple words(not in standard language please), i know about it but i want to confirm my concept about it .
now i will explain my problem with the help of couple of examples.
lets suppose company have a year on 31st december and issuance date of final statement is 30 March. Now, on year end company have a receivable of 15000 in its accounts,on 7 January company came to know that debtor has become bankrupt and he wont pay company now,it is obviously an adjusting event as the debtor which become bankrupt was there in the accounts of company at reporting date,so the company must adjust this, first of all i want to ask that is my logic correct?
If yes then, here is another example lets suppose same company which was mentioned in example above,some inventory of this company which offcourse was part of closing inventory,is destroyed by fire on 10th of January, i was reading this from BPP, it says its a non adjusting event..
I just cant understand its logic of being a non adjusting event, my point is that inventory which gets destroyed by fire did exit at reporting date, so it must be an adjusting event rather than being non adjusting one, kindly correct me and point out my mistake.
Kindly help me out with this, as you always do, thanks for your co operation .
“first of all i want to ask that is my logic correct?” – yes, provided only that the $15,000 was there at the year end and was not paid on say 4 January and a new $15,000 created on 6 January (highly improbable)
An adjusting event is one that takes place ….. and which relates to a condition or situation that existed at the balance sheet date or which fixes with greater certainty an amount or estimate at the balance sheet date
At the balance sheet date the inventory was worth $xxx and was worth $xxx right through until the fire. The fire does not fix with greater certainty an amount or estimate at the balance sheet date
The difference is that the receivable was probably doubtful as at the year end, but no-one had recognised how irrecoverable the receivable was until the liquidation was announced
okay great, i request you to confirm my new concepts and to point out my mistake where i get wrong
firstly, as far as debtors are concerned, we all know that provision for doubtful debt is created each year,so according to my knowledge we have to first see that the debtor who has got bankrupt now, whether we have created provision of doubtful debt especially for that particular debtor
if we did then its a adjusting event (as condition exited at balance sheet date in form of provision) , we must adjust its balance.
and if we did not then make the provision, then no condition will be existed at balance sheet date and it will be classified as non adjusting event….am i right,especially my reason.
Secondly, as far as inventory which got destroyed by fire is concerned, company would not have make any adjustment in accounts with respect to this so that’s why it should be classify as non adjusting event..am i right , especially my reason?
Thirdly, i want to ask that lets suppose company did not pay rent for the year till reporting date and has a rent payable account at end of reporting period , and after reporting period company pays the rent, according to me its an adjusting event and the reason for it will be the fact that in account company would have passed the accrual by debiting the rent and crediting rent payable which indicates that condition exists at balance sheet date, so it will be a adjusting event . am i right especially my reasons?
Thanks soo much for your precious time, its honor for us to have a teacher like you
Re the receivables, no, you’re not correct. This has nothing at all to do with any allowance for receivables. Any such allowance is purely coincidental to the decision of whether or not a subsequent liquidation is an adjusting or a non-adjusting event.
Ask yourself this “Was the subsequent event an event that fixed with greater certainty an amount or estimate as at the year end date ? Did it relate to a condition or situation that existed at the year end date?”
Was the inventory there at the year end? Was it valued at lower of cost and nrv as at the year end? Yes! Then the fire is a non-adjuster
Was the receivable there at the year end? Was it valued at the lower of cost and nrv as at the year end? No – a subsequent event has demonstrated that the receivable as at the year end was over-valued as at the year end
Re the rent – again, No. The condition or situation that existed as at the year end was that the company owed the rent. That was the condition or situation as at the year end! To continue your analogy, and payable balance outstanding (or receivable balance outstanding as at the year end) would need to be adjusted whenever we paid (or received) money to settle that debt.
This is nonsense!
I got ur point with respect to debtors but about inventory my point is not yet clear, debtor was there in the year end and hence it was overstated, so we made the adjustemnt thats quite easy to understand !
Now we talk about inventory, lets suppose inventory which got destroyed by fire had cost of 10,000 and Nrv of 15,000 so we had valued that inventory at 10,000 in our accounts at the year end untill here thats fine !
Now this inventory got destoryed by fire, now its nrv might fall below its cost as it is completely destroyed now, why wont we make any adjustement with respect to it ? cant understand how to think about this please help 🙁
Because the inventory at the year end was correctly valued but the receivable wasn’t
Well i am facing problem with consistancy of this criteria or rule, it applies to one thing eg debtor but it doesnt apply to inventory, i will show you how
I want help on inventory issue, i asked my self that did that destroyed inventory exist at reporting date, answer is yes!
Then the next problematic part start, did it correctly value at year end now here arise two possible questions, firstly if we see according to the information available till the reporting date than i will say yes, because it was valued correctly at the lower of cost and nrv till balance sheet date
Secondly, if we consider subsequent period as well then i will say No because the inventory which was included in year end was either value at the lower of cost or nrv in accounts thats perfectly fine, but after the incident the nrv of the inventory must have fallen down, dont u think we should adjust the nrv( reduce) in the accounts with respect to that inventory which has got damage ? and if we dont adjust the nrv of the inventory that it would mean that our valuation of inventory at reporting date is not correct so why isnt it an adjusting event ? or why wont we adjust the nrv and bring it to its real value ?
“did it correctly value at year end now here arise two possible questions, ” – no question, yes it did exist and yes, it was correctly valued. The fire after the year end did not change the year end position. Ammardar, I’m not prepared to spend any more time on this!
“dont u think we should adjust the nrv( reduce) in the accounts with respect to that inventory” NO, as at the year end, it was correct. ACCEPT IT and MOVE ON! Life is too short to discuss the possibility that the IAS is confusing. It isn’t
Hi sir, i am asking last question from you with respect to this topic please dont mind
If some item of stock, not whole stock which was there at year end got damage by fire after reporting period ,we will not adjust its net realizable value at the year end, right ?
And secondly if an asset i mean plant got damage by fire, at year end then wont we impair the plant at year end right ?
1) we will not adjust net realisable value
2) we will not impair the asset as at the year end
Dear tutor, I have a question. If I calculated impairment for receivables as per IFRS 9. If after the reporting date but before the date financial statements are signed by the client, I see that almost all receivables impaired are actually collected (provision was calculated based on default rates, no significant change was considered compared to them due to no change in business environment). Should I create any provision as of reporting date? Can I tell that the management already began working with debtors as of reporting date and believed no provision should be created despite the debtors are overdue and there are some historical default rates? Should I disclose that receivables existed as of balance sheet date is collected?
Hi,
Yes, would reverse the impairment as it is giving us evidence that they are no longer impaired.
Thanks
Thank you. But the question is should I create provision at reporting date if receivables are collected after reporting date but before the FS is authorized for issue.
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