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Lets say we have an entity that has a year end date 31st Dec 2016. The financial statements authorisation date is 31st March 2017. This entity had recorded 10,000 inventory items for this line of goods at a cost of $5 per item under IAS 2 Inventory(Lower of cost or NRV).
Total inventory is £50,000 as per reporting date. But the goods had a sell-by date of 21st January 2017. At 22nd January 2017, the entity had to write off 2,000 goods($10,000) that were unsold to NIL value in the inventory and as an expense.Is this an adjusting or Non-Adjusting event for the financial statement year end 31st Dec 2016? Please provide reason for this.
Hi,
It would be a non-adjusting event as the condition did not exist at the reporting date. At the reporting date the goods were still able to be sold. It isn’t until the sell-by date, which is after the reporting date that the goods then had to be written down.
Don’t get it confused with the situation in the standard that states that if goods are sole below their cost post reporting date that we then adjust the value at the reporting date. Here it is the sale that gives evidence that will have existed as the reporting date.
Thanks
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