IAS 10 Events after the Reporting Period

**Section B - Case 2** *PharmaNova is a pharmaceutical company with a financial year end of 31 December 20X5. On 15 December 20X5, a patient filed a lawsuit against PharmaNova for $2 million, claiming side effects from a drug. Legal counsel advises there is a 60% probability PharmaNova will lose the case and have to pay the full $2 million. On 28 December 20X5, the board decided to close a research facility. A detailed formal plan was drawn up, but it was not communicated to the affected employees until 5 January 20X6. The estimated closure costs are $500,000. On 10 January 20X6, a major wholesale customer went bankrupt. The customer owed PharmaNova $300,000 at 31 December 20X5. On 1 February 20X6, PharmaNova decided to change its inventory valuation method from FIFO to Weighted Average to better reflect its business model.* **Question:** How should the bankruptcy of the wholesale customer be treated in the financial statements for the year ended 31 December 20X5?

**Section B - Case 2** *PharmaNova is a pharmaceutical company with a financial year end of 31 December 20X5. On 15 December 20X5, a patient filed a lawsuit against PharmaNova for $2 million, claiming side effects from a drug. Legal counsel advises there is a 60% probability PharmaNova will lose the case and have to pay the full $2 million. On 28 December 20X5, the board decided to close a research facility. A detailed formal plan was drawn up, but it was not communicated to the affected employees until 5 January 20X6. The estimated closure costs are $500,000. On 10 January 20X6, a major wholesale customer went bankrupt. The customer owed PharmaNova $300,000 at 31 December 20X5. On 1 February 20X6, PharmaNova decided to change its inventory valuation method from FIFO to Weighted Average to better reflect its business model.* **Question:** If PharmaNova's board declares a final dividend for the 20X5 financial year on 15 February 20X6 (before the financial statements are authorized for issue), how should this be treated in the 31 December 20X5 Statement of Financial Position?