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Hi Sir,
Part of this question states that:
“At
30 November 2014, Coatmin became aware of the fact that the subsidiary was having financial difficulties with
the result that it has not paid the second instalment of principal. It is assessed that it is probable that the
guarantee will now be called. However, just before the signing of the financial statements for the year ended
30 November 2014, the subsidiary secured a donation which enabled it to make the second repayment before
the guarantee was called upon. It is now anticipated that the subsidiary will be able to meet the final payment.”In the marking scheme, it states that this is an adjusting event. But shouldn’t it be a non-adjusting event because the receipt of donation was indication of events after the reporting period?
Thanks
Hi,
The company was in financial difficulty at the reporting date, the receipt of the funds does not change this fact.
It would be a material non-adjusting event, requiring disclosure.
Thanks
Thank you
That is exactly what I thought so I am confused as to why the marking scheme stated that it is an adjusting event.
I do not agree with both of you. To me this is an adjusting event for the following reasons:
– at the year end it was probable that the guarantee was going to be called for hence a provision was supposed to be recognised at the year end. this means that a liability existed at the year end.
– after the year end before the accounts were signed, it was then found that because of the donation it was no longer probable that the guarantee would be called for. this new information relates to a provision which existed at the reporting date and the provision should be adjusted in light of this new information. the provision needs to be reversed.
I therefore hold that this is an adjusting event.
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