ADJUSTING AND NON-ADJUSTING EVENTS

This topic has 8 replies, 2 voices, and was last updated 5 years ago by khawarbutt.

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June 24, 2017 at 4:47 pm #393994
khawarbutt
- 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: 6234
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
- 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
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Would we capitalise the warranty?
June 28, 2017 at 11:36 pm #394299
khawarbutt
- 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
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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
- 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
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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
- Topics: 14
- Replies: 6
Thank you Chris!
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