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Dear Tutor,
There is an exam question that reads as follows:
At the year ended 31/12/2011, the company’s inventories were stated at $50,000. The company’s financial statements for the year were approved on 31/3/2012. After the balance sheet date but before the approval date, a fire broke out and the inventories were destroyed.
The answer to this question says that it was a non-adjusting post balance sheet event whish require disclosure only.
However, I was wondering why there is no need to write down the inventories to zero at the balance sheet date , considering that their net realizable value come to zero upon destruction?
Could you please help me with this?
Here’s your answer: “However, I was wondering why there is no need to write down the inventories to zero at the balance sheet date , considering that their net realizable value come to zero upon destruction?”
As at balance sheet date, the inventory was correctly valued. An adjusting event is one which relates to a condition or situation which existed at the balance sheet date and, as at that date, the inventory was correctly valued at $50,000
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