ExpertMedium2 marksMultiple Choice
ACCA · Question 22 · Preparing Basic Financial Statements
Section A
Which of the following is an example of an adjusting event after the reporting period under IAS 10?
Section A
Which of the following is an example of an adjusting event after the reporting period under IAS 10?
Answer options:
A.
The destruction of a major production plant by fire two weeks after the year-end.
B.
The announcement of a major restructuring plan one month after the year-end.
C.
The bankruptcy of a major customer shortly after the year-end, relating to a debt that existed at the year-end.
D.
A significant decline in the market value of investments after the year-end.
How to approach this question
Determine if the event provides evidence of conditions that existed AT the end of the reporting period (Adjusting) or arose AFTER the reporting period (Non-adjusting).
Full Answer
C.The bankruptcy of a major customer shortly after the year-end, relating to a debt that existed at the year-end.✓ Correct
Under IAS 10, adjusting events provide evidence of conditions that existed at the end of the reporting period. The bankruptcy of a customer confirms that the receivable balance at year-end was impaired. Fires, market declines, and new restructuring plans relate to conditions arising after the reporting period and are non-adjusting (though they may require disclosure).
Common mistakes
Thinking that major disasters (like a fire) must be adjusted for because of their size.
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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