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In accordance with IAS 10, which of the following events would be classed as a non- adjusting event in Maykorn Co’s financial statements for the year ended 30 September
A. During October 20X3, there was evidence of a permanent diminution in the carrying amount of a property held at 30 September 20X3
B.On 1 December 20X3 the acquisition of a subsidiary was completed, following lengthy negotiations which began in September 20X3
C. The sale of inventory during October 20X3 at a value less than its cost. This inventory was included in the financial statements at cost on 30 September 20X3
D. The insolvency of a major customer during October 20X3, whose balance was included within receivables at 30 September 20X3.The answer is option b. But my question is why isn’t option A the correct answer since the diminution in the carrying value of the asset could have taken place after the reporting date, hence, even it could be a non-adjusting event? Why is Option b the correct answer? Why is option A not the correct answer?
Hi,
The evidence in October gives information about the asset’s condition at the reporting date, hence it would be an adjusting event. It is similar to when the value of inventory is adjusted at the reporting date if it is sold after the reporting date for a NRV below its cots (as is the case in option C).
The negotiations may have been in existence at the reporting date but the subsidiary had not been acquired at that date, and so we would not have had any control over it. It will therefore not be an adjusting event.
Hope that clears it up for you.
Thanks
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