Week 2 - IAS 10 Events After Reporting Period

Financial Accounting 2B
COFAB2-22
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Week 0 – 1 Recap Leases, Lessees perspective (Chapter 16)
Learning outcome
Week 1 – 2 Recap
Lessee - Party to a lease agreement that makes a payment or a series of payments to another
party (lessor) in return for the right to use the asset for an agreed period.
Lessor - Party to a lease agreement that grants another party (lessee) the right to use an asset
for an agreed period in return for payment.
Week 1 – 2 Recap
Refer to prescribed textbook Gripping GAAP 2024/25 Ed page 794 summary flow chart of analysing the lease definition
Recognition and Measurement - Lessee
Recognise right of use of asset and a lease liability
Initial measurement = cost on the commencement date
Cost =
Amount of initial measurement of lease liability
+ Any lease payments made at or before the commencement date
- Any lease incentive received
+ Any initial direct cost incurred by the lessee
+ Estimate of cost to dismantle or remove underlying asset
Subsequent Measurement:
What will be covered
in today’s lesson?
Events after the
reporting period Introduction
–IAS 10
Definitions
Examples
Week 3
Apply the principles prescribed in IAS 10 when accounting for Events after the reporting period
Definition
• Event after the reporting period:
• favorable or unfavorable events or an event/s that occur between:
• The end of the reporting period and
• The date that the financial statements are authorized for issue.
• Authorised for issue means:

Definition
Fav/unfavourable event
Beg End FS authorised

Reporting period Reporting period for issue
Definition
• Each event after the reporting period will need to be analysed and categorised as
being either:
• an adjusting event; or
• a non-adjusting event.
Accounting treatment
Treatment = Financial Statements are adjusted for the event

Accounting treatment
Disclosure:
• Nature of event and
• Estimated effect on
financial statements or
statement that estimate
cannot be made.
Imaterial = Financial Statements Not adjusted for the event
If material = disclose information about the event in the notes. This is because the
information is deemed important to the users for making decisions, excluding it would be
misleading.
Disclosure
The following information should be disclosed:
• the date that the financial statements were authorised for issue;
• the person or persons who authorised the issue of the financial statements;
• the fact that the financial statements may be amended after issue, if this is the case;
• each material category of non-adjusting event after the end of the reporting period:
− the nature of the event; and
− the estimated financial effect or a statement that such an estimate is not possible.
Class Example 1
Company Friday declares a dividend to its shareholders after the reporting date but before the
financial statements are authorised for issue.
Required: Should the financial statements for the period under review be adjusted for this
dividend declared?
Class Example 1 Solution
If a dividend distribution relating to the period under review is declared during this post- reporting
period, this dividend would not be recognised (adjusted for) as a dividend distribution in the statement
of changes in equity in the current period under review.
• This is because the obligation only arises on the date that the dividend is declared (being
the obligating event).
• Since the dividend was declared after the reporting date, the obligating event cannot be
considered to be a past event.
• Since the obligating event was not a past event, it means the obligation could not have
existed on reporting date. In other words, there is no present obligation at reporting date.
Conclusion: the dividend declaration represents a condition that arose after reporting date. These
dividends declared must not be journalised, but must be disclosed in the notes to the financial
statements instead (in accordance with IAS 1 Presentation of financial statements).
Going concern
• If it is believed that the going concern
assumption is no longer appropriate, then
the financial statements = completely
revised, whether or not the condition
existed at year-end!
• The entity shall not prepare financial statements on
a going concern basis if management determines
after the reporting period:
• To liquidate,
• Cease trading
Class Example 2
Finito Limited is currently in the process of finalising their financial statements for the year
ended 31 December 20X2.
The following events occurred / information became available between 1 January 20X3 and
28 February 20X3 (the date the financial statements were authorised for issue):
A. A debtor that owed Finito C110 000 at year-end was in financial difficulties at year-end and, as a
result, Finito processed an impairment loss adjustment of C30 000 against this account. In January
20X3, the debtor’s lawyers announced that it would be paying 40% of all debts.
B. A debtor that owed Finito C150 000 at year-end had their factory destroyed in a labour strike in
December 20X2. As a result, this debtor has filed for insolvency and will probably pay 60% of the
balance owing. Finito was unaware of this debtor’s financial difficulties at 31 December 20X2.
C. Inventory carried at C100 000 at year-end was sold for C80 000 in January 20X3. It had been
damaged in a flood during June 20X2.
D. Current tax expense of C30 000 had been incorrectly debited to revenue in 20X2.
Class Example 2
E. Finito had decided in a directors meeting held on 28 December 20X2 to close down a branch in the
Canary Islands. This decision was announced to the affected suppliers and employees via a
newspaper article published on 15 January 20X3.
F. A court case was in progress at 31 December 20X2 in which Finito was the defendant against claims
of radiation from cell phones purchased by a group of customers during 20X2. No provision was
recognised at year-end because Finito disputed the claims made.
The court ruled against Finito on 20 February 20X3 but has not yet indicated the amount to be paid
to the claimant in damages although Finito’s lawyers have now estimated that an amount of
C200 000 will be payable.
There was no inventory of the radioactive cell phones on hand at year-end.
G. A customer lodged a claim against Finito in February 20X3 for food poisoning experienced in
January 20X3. After investigation, Finito found that all cans of berries produced in December 20X2
were poisoned. The claim is for C100 000. The carrying amount of canned berries at
31 December 20X2 is C80 000. Legal opinion is that Finito may be sued for anything up to
C1 000 000 in damages from other customers although a reliable estimate is not possible.
H. Finito declared a dividend on 20 February 20X3 of C30 000.

Class Example 2
Required: None of the above events has yet been considered. Explain whether the above events
should be adjusted for or not when finalising the financial statements for the year ended 31 December
20X2. If the event is an adjusting event, provide the relevant journal entries.
Class Example 2 - solution
What Happens Next?
• Todays lecture:
• Recap slides
• Read textbook Chapter 18B Events after reporting period and make summaries
• Prepare for next lecture:
• IAS 37 provisions, contingent assets and contingent liabilities (Chapter 18A)
• Quiz opens today

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Financial Accounting 2B

Initial measurement = cost on the commencement date

• Authorised for issue means:

Beg End FS authorised

Treatment = Financial Statements are adjusted for the event

Imaterial = Financial Statements Not adjusted for the event

H. Finito declared a dividend on 20 February 20X3 of C30 000.

• Quiz opens today

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