ExpertMedium2 marksMultiple Choice
ACCA · Question 28 · Events After the Reporting Period
A company's year-end is 31 December 20X5. On 15 January 20X6, before the financial statements are authorized for issue, a major customer goes bankrupt. The customer owed $50,000 at the year-end. How should this event be treated in the financial statements for the year ended 31 December 20X5?
A company's year-end is 31 December 20X5. On 15 January 20X6, before the financial statements are authorized for issue, a major customer goes bankrupt. The customer owed $50,000 at the year-end. How should this event be treated in the financial statements for the year ended 31 December 20X5?
Answer options:
A.
Disclose the event in the notes to the financial statements only.
B.
Adjust the financial statements to write off the $50,000 receivable.
C.
Ignore the event as it happened after the year-end.
D.
Create a provision for $50,000 in the 20X6 financial statements only.
How to approach this question
Determine if the event provides evidence of conditions that existed at the end of the reporting period (Adjusting) or conditions that arose after the reporting period (Non-adjusting).
Full Answer
B.Adjust the financial statements to write off the $50,000 receivable.✓ Correct
Under IAS 10 Events after the Reporting Period, 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. Therefore, it is an adjusting event, and the financial statements must be adjusted to write off the receivable.
Common mistakes
Treating it as a non-adjusting event requiring disclosure only, simply because the legal bankruptcy happened after year-end.
Practice the full ACCA FA — Financial Accounting Practice Exam 3
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