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please answer this ques :
– X has a year-end of 31 Dec 20×6.
[on 1 Jan 20×7, a flood in the finished goods warehouse caused damage to some inventory. The inventory had cost $ 45,000 to produce, but was sold on 15 Jan 20×7 for $ 30,000.][on 3 Jan 20×7, one of the company’s customers, Z ,went into liquidation owing X $ 50,000.]
What is the decrease in the profit for the year ended 31 Dec 20×6 as a result of these events ?
This is testing your knowledge of events after the reporting, and is governed by IAS10.
Adjusting event: an event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period.
Non-adjusting: an event after the reporting period that is indicative of a condition that arose after the end of the reporting period.
Therefore, there’s no need to to make an adjustment for the damaged goods because the condition arose after the reporting date i.e 31.12.06.
However, the liquidation of a major customer needs adjustment, because the condition of the customer being insolvent would had been present before the reporting date.
Profit decrease by £50,000
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