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Hi Mr Garrett,
May I ask why the inventory that are damaged after year-end is a non-adjusting event? The Kaplan Text book says because the inventory was not damaged at the year-end.
Then why receivables owed by one customer who went into administration after year-end is an adjusting event? Can’t I also apply the same logic re question 1 above in this scenario, ie because the receivables was not “damaged” at the year-end?
Aren’t both of these two events providing evidence of the valuation of the assets at the year-end? Why inventory is non-adjusting event, while receivables are?
It’s doesn’t make any sense.
Thanks.
The difference is that at year end, the inventory was in perfect condition. The destruction of that perfect inventory, and its fall in value all happened after year end.
However, if a customer goes into administration shortly after year end, almost certainly that customer, and what they owed us, was in a very poor condition at year end (companies normally don’t suddenly get into difficulties poor trading has bee going on for some time). The administration after year end told us something about the condition of the asset at year end.
HTH
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Okay, now I got it. Thank you.
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