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Hello Sir!
Could you please help me with this question?
Viola had an accounting year end of 31st January 20×4:
Which of the following events, which occurred before the financial statements were approved, should be classified as adjusting events in accordance with IAS 10 Events after reporting period?1. Viola paid an equity dividend of 10,000 on 28th February 20×4. The dividend was proposed by the directors on the 20th of January 20×4.
2. Notification of a compensation claim from a customer was received on 15th February 20×4 which related to a faulty product sold by Viola in January 20×4.
3. Viola received notification on 5th February 20×4 that a major credit customer was insolvent.
Answer: 2 & 3.
Sir, I’m having trouble interpreting point 2. Points 1 and 3 are pretty clear. However for point 2, I understand that it was a claim that has evidence on the date of reporting from a IAS10 perspective and that would make it adjusting. However even though it is a claim meaning it has a financial estimate, can’t a compensation claim be either a contingent liability or a provision depending on if it was possible or probable? if it is a contingent liability would it not just be disclosed via a note?
Or would we simply stick to the rules of IAS 10 for such questions and ignore the provisions part?
Would you really appreciate your help! Thank you!
Both IAS’s apply 🙂
Because the faulty product was sold before the end of the accounting period, it is an adjusting event. That means we then apply the rules about contingent liability etc. (and since it was a faulty product it is highly likely that there will be compensation). Had the product been sold after the end of the accounting period it would not be a non-adjusting event and so we would not need to apply the rules.
Oh ok, so it’s sort of a combination of both IASs. Understood!
Thank you so much sir! Really helped me to understand how to approach a question like this.
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