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Dear Tutor,
Hope you are fine.Could you please explain how we should treat with the sales return which relates to the previous year sales?
Should we reduce the sales of the current year or it is a prior year adjustment?
Also according to IAS 10, is it important if the sales return occurs before finalizing the financial statements? I mean can it be an adjusting event at all?
Thanks
Sales return before accounts finalised:
Definitely adjusting.
Sales return after accounts finalised:
Adjust in year of return (immaterial error) or prior year adjustment (material error).
Either way it’s an error because the business should accurately estimate returns before they sign off.
In the exam, don’t worry about IFRS numbers – you are advising directors , so they may be confused, especially if you use the wrong number!
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