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ADJUSTING AND NON-ADJUSTING EVENTS

Forums › Ask CIMA Tutor Forums › Ask CIMA F1 Tutor Forums › ADJUSTING AND NON-ADJUSTING EVENTS

  • This topic has 8 replies, 2 voices, and was last updated 7 years ago by khawarbutt.
Viewing 9 posts - 1 through 9 (of 9 total)
  • Author
    Posts
  • June 24, 2017 at 4:47 pm #393994
    khawarbutt
    Participant
    • Topics: 14
    • Replies: 6
    • ☆

    Hi,
    Why would the following be a non adjusting event.

    A company took delivery of a new machine from usa in the last week of the financial year. It was discovered almost immediately afterwards that the entity supplying the machine had filled for bankruptcy and would not be able to honour the warranties and repair contract on the new machine. Because the machine was so advanced, it was unlikely that any local entity could provide maintenance cover.

    June 27, 2017 at 9:19 pm #394226
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    What would we be adjusting for? We have the machine and it is in working order, so the fact that there is no warranty is not really relevant.

    Thanks

    June 27, 2017 at 11:46 pm #394235
    khawarbutt
    Participant
    • Topics: 14
    • Replies: 6
    • ☆

    Hi,
    Thank you for your response.
    We have paid for the warranty and i assume it was capitalised with the cost of asset ( since it covers more than one period) and would be written off to P & L over the no of years the warranty is for.So would we not do an adjustment to that amount which has been paid and capitalised in the books?

    Waiting for your kind response.?

    June 28, 2017 at 1:20 pm #394271
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Would we capitalise the warranty?

    June 28, 2017 at 11:36 pm #394299
    khawarbutt
    Participant
    • Topics: 14
    • Replies: 6
    • ☆

    Apologies. We will not but if it is covering 3 years, would we prepay/defer it and show it as an asset on BS. If we will then would we do an adjustment for that under the scensrio mentioned above?

    July 10, 2017 at 10:38 am #395164
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    If we have prepaid for the warranty then it would be shown as a prepayment on the SFP. If we are no longer to receive the service due to the liquidation of the supplier then it would need to be written off.

    Thanks

    July 10, 2017 at 12:39 pm #395181
    khawarbutt
    Participant
    • Topics: 14
    • Replies: 6
    • ☆

    Hi,
    So it is an adjusting event.
    Makes sense. Thanks a lot.

    July 11, 2017 at 12:09 pm #395439
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Excellent! I’m glad we both got to the answer. Keep up the hard work and let me know if you’ve any further questions.

    Chris

    July 11, 2017 at 12:25 pm #395444
    khawarbutt
    Participant
    • Topics: 14
    • Replies: 6
    • ☆

    Thank you Chris!

  • Author
    Posts
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