IAS 10 Presentation. Recovery

C1: CORPORATE REPORTING &
B2: FINANCIAL ACCOUTNTING

IAS 10: EVENTS AFTER REPORTING PERIOD.
Compiled by
CPA(T) SHAKIRU ABDUL MTANDA.
DEFINITIONS
Events after reporting period
Are those events whether favorable or unfavourable to the entity occurring
between the end of the reporting period and the date when the financial
statements are authorized for issue.
Reporting period
The period for which financial statements have to be prepared.
Date of authorization for issue
Is the date for which financial statements are authorized to be issued to the
public
This date should normally be disclosed on the financial statements and this
is because any event arose after this date is neither nor no adjusting events
To be covered
➢ Definitions
➢ Scope of IAS 10
➢ Types of events after reporting period
➢ Examples of Adjusting events
➢ Examples of Non-Adjusting events
➢ Disclosures of non-Adjusting Events
➢ Dividend
➢ Going concern
➢ Examples
SCOPE
The IAS 10 covers the events happening only between the end of the
reporting period and the date of authorization for issue. Any events
happening before or after this period do not fall within the scope of IAS
10.
TYPES OF EVENTS AFTER REPORTING PERIOD.
There are two types of events after reporting period as per IAS 10 , these
includes Adjusting events and Non-adjusting events.
Adjusting Events
Are those events happening after the end of the reporting period but
which provide additional evidence of conditions that existed at the end of
the reporting period.
Non-Adjusting Events
Are those events that provide indicative evidence of conditions that arose
after the reporting period.
EXAMPLES OF NON-ADJUSTING EVENTS
i. Major purchases of assets, classification of assets as held for sale in accordance with IFRS
5 Non-current Assets Held for Sale and Discontinued Operations, other disposals of
assets, or expropriation of major assets by government
ii. The destruction of a major production plant by a fire after the reporting period;
iii. Abnormally large changes after the reporting period in asset prices or foreign exchange
rates
iv. Changes in tax rates or tax laws enacted or announced after the reporting period that have
a significant effect on current and deferred tax assets and liabilities (see IAS 12 Income
Taxes)
v. Entering into significant commitments or contingent liabilities, for example, by issuing
significant guarantees; and
vi. Commencing major litigation arising solely out of events that occurred after the reporting
period.
vii. A major business combination after the reporting period (IFRS 3 Business Combinations
requires specific disclosures in such cases) or disposing of major subsidiary;
viii. Announcing a plan to discontinue an operation;
EXAMPLES OF ADJUSTING EVENTS
i. The discovery of fraud or errors that show that the financial statements are
incorrect
ii. The determination after the reporting period of the cost of assets purchased, or
the proceeds from assets sold, before the end of the reporting period.
iii. The settlement after the reporting period of a court case that confirms that the
entity had a present obligation at the end of the reporting period.
iv. The receipt of information after the reporting period indicating that an asset was
impaired at the end of the reporting period, or that the amount of a previously
recognized impairment loss for that asset needs to be adjusted. For example:
✓ The bankruptcy of a customer that occurs after the reporting period usually confirms that a
loss existed at the end of the reporting period on a trade receivable and that the entity needs to
adjust the carrying amount of the trade receivable; and
✓ The sale of inventories after the reporting period may give evidence about their net realizable
value at the end of the reporting period.
DISCLOSURES OF NON ADJUSTING EVENTS
If non-adjusting events after the reporting period are material,

nondisclosure could influence the economic decisions that users make on
the basis of the financial statements. Accordingly, an entity shall disclose
the following for each material category of non-adjusting event after the
reporting period
i. The nature of the event; and
ii. An estimate of its financial effect or a statement that such an estimate cannot
be made.
DIVIDEND
• If an entity declares dividends to holders of equity instruments after the
reporting period, the entity shall not recognize these dividends as a liability
at the reporting period.”
• Thus, if dividends are declared after the reporting period but before the
financial statements are authorized for issue, they are treated as a non-
adjusting event whose disclosure is required by way of a note. Only
dividends declared before the year end are accrued as a liability, as only
then do they meet the criteria of a present obligation.
EXAMPLES
Example 01
The historical cost of a company’s inventory as at 30 June, 2003 was TZS. 300,000.
This was the value at which the inventory was reported in the company’s balance sheet
as at that date. On 12 July, 2003, inventory that had cost TZS 100,000 and was on hand
on 30 June, 2003 was sold, in an arm’s length transaction, at TZS. 25,000. It is believed
that the remaining inventory can easily be sold at prices above historical cost. The
company’s financial statements were authorized for issue on 30th September, 2003.
Required:
What is the appropriate treatment for the company’s inventory referred to above?
Answer
This is an adjusting event as the sale of inventory below its cost after reporting period
but before the date of authorization for issue provides additional evidence that
inventory was overvalued as at the reporting date, the IAS 2 states that inventory
should be valued at the lower of cost (100,000) and NRV (25,000). The amount of
inventory should be written down by TAS 75,000 (100,000-25,000).
GOING CONCERN
• An entity shall not prepare its financial statements on a going concern

basis if management determines after the reporting period either that it
intends to liquidate the entity or to cease trading, or that is has no realistic
alternative but to do so”
• If the going concern basis is no longer appropriate the effect is so
pervasive that the IASB sees this as a fundamental change in the basis of
accounting rather than an adjustment to the financial statements in the
manner of adjusting events.
EXAMPLES
Example 02
On 31 December 2002, ABC Ltd. had raw materials which had cost TZS. 2,100,000. These
materials were not insured. On 31 March, 2003, a fire broke out in the company’s store and
before it was contained had completely destroyed materials which had cost the company TZS.
750,000. No other item was spoilt.
Required:
How this event should be treated:
i. if the company’s financial statements for the year ended 31 December 2002 were
authorized for issue on 10 April, 2003?
ii. If the company’s financial statements for the year ended 31 December 2002 were
authorized for issue on 12 March, 2003?
Answer i
This is a non-adjusting event as the occurrence of fire provides indicative evidence of a
condition that arose after the reporting date. The amount of loss is more than 35% of
total inventory which is a material amount and thus it should be disclosed in the financial
statements.
EXAMPLES
Answer ii.
This event falls out of the scope of IAS 10 and for that reason nothing should be done in the
financial statements to 31.dec. 2002.
Example 03
Alpha Ltd’s financial statements for the year ended 31 December 2003 were authorized for
issue on 15 June, 2004. On 31 March 2004, the directors proposed an ordinary divided on Shs.
500,000 for the year ended 31 December 2003.
Required:
What is the appropriate treatment for the company’s ordinary dividend of Shs. 500,000?
Answer
This is a non adjusting event as the dividend has been declared after the reporting period and
thus provides indicative evidence of condition that arose after the reporting period. The TAS
500,000 of dividend should only be disclosed in the financial statement.
QUESTION FOR PRACTISE.
1. Shanam Limited’s (Shanam) financial year ends on 31 December. On 20 December
2013, Shanam was involved in a court case with a customer who sued the company
for delivering products where there was a dispute over the exact ingredients
included in the products manufactured by Shanam. These products were delivered
to the customer in October 2013. The details of the case were heard by 22
December but the judge decided to reserve her judgment until 8 January 2014. On 8
January 2014, the judge ruled in favour of the customer, awarding it damages of
€100,000. Discuss the treatment of the above.
2. Shanam Limited has an investment worth €1,000,000 in its financial statements at
31 December 2013. Due to the continuing recession, the investment reduced in
value to €900,000 by 15 January 2014
Discuss the above treatment in respective of IAS 10.
3. On 8 January 2014, one of the accountants left Shanam suddenly. On further
investigation, the company realised that this employee had been paying himself
money from the bank account in relation to false rental invoices. The amount of the
overpayment was found to be €86,000. With the help of the police, the accountant
was tracked down and repaid all of the money on 18 January 2014. Discuss the
above.
4. On 10 January 2014, Shanam Limited sold some inventory for €80,000. This
inventory had been included in the year-end inventory count at cost of €100,000.
Discuss the above treatment in respect of IAS 10.
5. Shanam Limited sold a truck on 31 December 2013 for €20,000. This truck had been
purchased on 1 January 2008. On 31 December a non-refundable deposit of
€15,000 was paid towards a new truck and a cheque was posted with the balancing
payment of €50,000. This cheque was not received and cashed by the seller until 4
January 2014. Discuss the matter in respect of applicable standard.
THE END
BE EVER BLESSED BEYOND MEASURES!!

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C1: CORPORATE REPORTING &

B2: FINANCIAL ACCOUTNTING

If non-adjusting events after the reporting period are material,

• An entity shall not prepare its financial statements on a going concern

BE EVER BLESSED BEYOND MEASURES!!

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