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On 15/1/2015 a customer who owed a material amount went into liqidation and there is no hope of any amounts being recovered.
Which if the folling is appropriate treatment of this event in financial statements of 31/12/1014?
why the answer is to write off and no disclosure requied (my ans was not to adjust it but to give a note)
as if a fire had damaged good (no insurance) on the same date and same scenerio the answer would have been not to adjust but to give a note.im a little confused, can you explain!
Hello, Ahmed!
Maybe the answer to question 5 b) Receivable from Past exam 8 December 2011 will help.
The idea is that even if the information was received after the year end, but it provides further evidence of the recoverability of the receivable balance at the year end.. Under IAS 10 Events after the Reporting Period, if the customer is experiencing cash flow difficulties just a few months after the year end, then it is highly unlikely that the amount was recoverable as at the year end.
Hope it helps!
Ina
Thanks Ina for pointing out the question of dec/11,
i’ve read the answer but still doesnt clear my confusion,
see if the year end is 31/12/2014 and the following happens on 25/01/2015a) Customer went into liquidation (were not experiencing any problems that we should have known of) , Material amount, nothing recoverable
b) stock burned/damaged by fire or some other natural disaster, material amount, none of it were insuredshouldnt both the answers be not to adjust but to give a note!!
I believe the answer to your question should be based on the managements reaction to the situation.
If they agree to adjust the receivables balance in their financial statements, then financial statements will show a true and fair view and no disclosure will be needed. (this is the answer as per your mcq, write off and no disclosure required)
BUT if management decides not to adjust the receivables figure in the financial statements that have been audited, then a qualified ‘except for’ opinion will be given on the grounds of receivables balance being materially misstated per the audit evidence obtained after the year end.thats what I think should be a reasonable approach…
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