FAC2601

LEARNING UNIT 10

IAS 10
EVENTS AFTER THE REPORTING
PERIOD

Financial Accounting
for Companies

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CONTENTS
Page

LEARNING UNIT 10: EVENTS AFTER THE REPORTING PERIOD.............................................. 1

10.1 Reporting Framework………………………………………………………………………………………… 4
10.2 Definitions ............................................................................................................... 5
10.3 Recognition and measurement ............................................................................... 6
10.3.1 Adjusting events after the reporting period (IAS 10.08-.09) .................................. 6
10.3.2 Non-adjusting events after the reporting period (IAS 10.10-.11)........................... 6
10.3.3 Dividends (IAS 10.12-.13) ........................................................................................ 7
10.3.4 Going concern (IAS 10.14-.16) ................................................................................ 7
10.4 Schematic presentation of events after the reporting period ................................ 8
10.5 Disclosure ................................................................................................................ 8
10.5.1 Date of authorisation for issue (IAS 10.17 – 18) ..................................................... 8
10.5.2 Updating of disclosure about conditions at the reporting date (IAS 10.19 – 20) ... 8
10.5.3 Non-adjusting events after the reporting period (IAS 10.21 – 22) ......................... 9
10.6 Comprehensive examples ....................................................................................... 11
10.7 Assessment Criteria ................................................................................................. 15

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 OBJECTIVE

The objective of IAS 10 is to prescribe

• when an entity should adjust its financial statements for events after the reporting period; and
• what an entity should disclose about events that occur after the reporting period and before the
date the annual financial statements are authorised for issue.
The standard also requires that an entity should not prepare its financial statements on a going
concern-basis if events after the reporting period indicate that the going concern assumption is not
appropriate.

LEARNING OUTCOME
After you have studied this learning unit, you should be able to do the following:
1. Identify the purpose of IAS 10.
2. Define events after the reporting period.
3. Differentiate between adjusting and non-adjusting events after the reporting date.
4. Recognise and measure adjusting events after the reporting date.
5. Disclose material non-adjusting events after the reporting date.

Overview
This learning unit will be discussed under the following sections:

10.1 Reporting Framework

10.2 Definitions
10.3 Recognition and measurement
10.3.1 Adjusting events after the reporting period (IAS 10.08-.09)
10.3.2 Non-adjusting events after the reporting period (IAS 10.10-.11)
10.3.3 Dividends (IAS 10.12-.13)
10.3.4 Going concern (IAS 10.14-.16)
10.4 Schematic presentation of events after the reporting period
10.5 Disclosure
10.5.1 Date of authorisation for issue (IAS 10.17 – 18)
10.5.2 Updating of disclosure about conditions at the reporting date
(IAS 10.19 – 20)
10.5.3 Non-adjusting events after the reporting period (IAS 10.21 – 22)
10.6 Comprehensive examples
10.7 Assessment Criteria

OVERVIEW OF LEARNING UNIT

This standard establishes the principles that an entity must apply to report useful
information to users of financial statements about the events that occur after the reporting
date.

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10.1 REPORTING FRAMEWORK
IFRS FOR SMEs Section 32 prescribes the accounting treatment (recognition and measurement) for Events after the end
of the reporting period and related disclosures.

Here are the main differences between IAS10 and Section 32 regarding the accounting treatment for events after the end
of the reporting period. See below Table 1.

IAS 10 (FULL IFRS) Section 32 (IFRS for SMEs)

Definitions

Events after the end Events after the end of the reporting period are those Same as IFRS.
of the reporting date events, favourable and unfavourable, that occur
between the end of the reporting period and the date [IFRS for SMEs 32.2]
when the financial statements are authorised for issue.
[IAS 10.3]

Adjusting event Adjusting events provide further evidence of conditions Same as IFRS.
that existed at the end of the reporting period and lead
to the adjustments to the financial statements. [IAS [IFRS for SMEs 32.2 (a), 32.5]
10.3(a)]

Non-adjusting event Non-adjusting events relate to the conditions that Same as IFRS.
existed at the end of the reporting period and lead to
adjustments to the financial statements. [IAS 10.3(b)] [IFRS for SMEs 32.2 (b), 32.7]

Recognition and
measurement

Dividends Dividends proposed or declared after the end of the Same as IFRS.
reporting period are not recognised as a liability in the
reporting period. [IAS 10.12 – 10.13] [IFRS for SMEs 32.8]

Date of Management discloses the date on which the financial Same as IFRS.
authorisation for statements were authorised for issue and who gave
issue that authorisation. If the owners or other persons have [IFRS for SMEs 32.9]
the power to amend the financial statements after
issue, this fact is also disclosed. [IAS 10.14 – 10.16]

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10.2 DEFINITIONS (IAS 10.3)
The following term is used in the standard with the meaning specified:

Events after the reporting period are those events, both favourable and unfavourable, that occur between the reporting
date and the date when the financial statements are authorised for issue. Two types of events can be identified:

a) those that provide evidence of conditions that existed at the end of the reporting period (adjusting events after the
reporting period); and

b) those that are indicative of conditions that arose after the reporting period (non-adjusting events after the reporting
period).

The process involved in authorising the financial statements for issue varies depending on the management structure,
statutory requirements and procedures followed in preparing and finalising the financial statements (IAS 10.4).

In some cases, an entity is required to submit its financial statements to its shareholders for approval after the financial
statements have already been issued. In such cases, the financial statements are authorised for issue on the date of original
issuance, not on the date that shareholders approve the financial statements (IAS 10.5).

EXAMPLE 1
The management of an entity completes draft financial statements for the year ended 31 December 20.11 on
29 February 20.12. On 18 March 20.12, the board of directors reviews the financial statements and authorises them for issue.
The entity announces its profit and selected other financial information on 19 March 20.12. The financial statements are
made available to shareholders and others on 1 April 20.12. The annual meeting of shareholders approves the financial
statements on 15 May 20.12 and the approved financial statements are then filed with the regulatory body on 17 May 20.12.

The financial statements are authorised for issue on 18 March 20.12 (date when the Board of directors authorised it for
issue). Events after the reporting period will therefore include those events that occur between the reporting date
(31 December 20.11) and 18 March 20.12.

In some cases, the management of an entity is required to issue its financial statements to a supervisory board (made up
solely of non-executives) for approval. In such cases, the financial statements are authorised for issue when the management
authorises them for issue to the supervisory board.

EXAMPLE 2
On 18 March 20.12, the management of an entity authorises financial statements for issue to its supervisory board. The
supervisory board is made up solely of non-executives and may include representatives of employees and other outside
interest groups. The supervisory board approves the financial statements on 26 March 20.12. The financial statements are
made available to shareholders and others on 1 April 20.12. The annual meeting of shareholders receives the financial
statements on 15 May 20.12 and the financial statements are then filed with the regulatory body on 17 May 20.12.

The financial statements are authorised for issue on 18 March 20.12 (date of authorisation for issue to the supervisory
board). Events after the reporting period will therefore include those events that occur between the reporting date and
18 March 20.12.

Events after the reporting date include all events up to the date when the financial statements are authorised for issue, even
if those events occur after the publication of a profit announcement or of other selected financial information.

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10.3 RECOGNITION AND MEASUREMENT
10.3.1 Adjusting events after the reporting period (IAS 10.08 –.09)
An entity must adjust the amounts recognised in its financial statements to reflect adjusting events after the reporting period.

The following are examples of adjusting events after the reporting period that require an entity to adjust the amounts
recognised in its financial statements, or to recognise items that were not previously recognised:

a) The resolution after the reporting period of a court case which, because it confirms that an entity already had a present
obligation at the reporting period, requires the entity to adjust a provision already recognised, or to recognise a
provision instead of merely disclosing a contingent liability.

b) The receipt of information after the reporting period indicating that an asset was impaired at the reporting date, or that
the amount of a previously recognised impairment loss for that asset needs to be adjusted. For example:

(i) The bankruptcy of a customer which occurs after the reporting period usually confirms that a loss already existed at
the reporting date on a trade receivable account and that the entity needs to adjust the carrying amount of the trade
receivable account.
(ii) The sale of inventories after the reporting period may give evidence about their net realisable value at the end of
the reporting period.

c) The determination after the reporting period of the cost of assets purchased or the proceeds from assets sold before
the reporting period.

d) The determination after the reporting period of the amount of profit sharing or bonus payments, if the entity had a
present legal or constructive obligation at the reporting date to make such payments as a result of events before that
date. (According to the statement on Employee Benefits – not part of this module).

e) The discovery of fraud or errors that show that the financial statements were incorrect.

EXAMPLE 3
The financial year-end of Beta Ltd is 31 December 20.11 and the financial statements are authorised for issue on
30 March 20.12.

On 5 January 20.12, the employees of the construction division of Beta Ltd found rock formations at one of the company's
construction projects that would delay construction to such an extent that additional costs amounting to R500 000 would be
incurred. This event refers to a condition that existed at the reporting period, because the rock formations existed at
31 December 20.11. The additional cost of R500 000 should therefore be accounted for in the financial year ended
31 December 20.11.

10.3.2 Non-adjusting events after the reporting period (IAS 10.10 –.11)
An entity must not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the
reporting period.

An example of a non-adjusting event after the reporting period is a decline in market value of investments between the
reporting period and the date when the financial statements are authorised for issue. The decline in fair value does not
normally relate to the condition of the investments at the reporting period but reflects circumstances that have arisen
subsequently. Therefore, an entity does not adjust the amounts recognised in its financial statements for the investments.
Similarly, the entity does not update the amounts disclosed for the investments as at the reporting date, although it may
need to give additional disclosure (see the paragraph dealing with disclosure).

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The following are examples of non-adjusting events after the reporting period that may be of such importance that non-
disclosure would affect the ability of the users of the financial statements to make proper evaluation and decisions (IAS
10.22):
a) a major business combination after the reporting period (paragraph 59(b) and B66 of IFRS 3 – Business combinations,
requires specific disclosures in such cases – not part of this module) or disposing of major subsidiary;
b) announcing a plan to discontinue operation, disposing of assets or settling liabilities attributable to a discontinuing
operation or entering into binding agreements to sell such assets or settle such liabilities;
c) major purchases and disposals of assets, or expropriation of major assets by government;
d) the destruction of a major production plant by a fire after the reporting period;
e) announcing, or commencing the implementation of, a major restructuring (see IAS 37, Provisions, contingent liabilities
and contingent assets);
f) major ordinary share transactions and potential ordinary share transactions after the reporting period (IAS 33, Earnings
per share, encourages an entity to disclose a description of such transactions, other than capitalisation issues and share
splits – not part of this module);
g) abnormally large changes after the reporting period in asset prices or foreign exchange rates;
h) 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 (not part of this module);
i) entering into significant commitments or contingent liabilities, for example by issuing significant guarantees; and
j) commencing major litigation arising solely out of events that occurred after the reporting period.

10.3.3 Dividends (IAS 10.12 –.13)

If dividends to holders of equity instruments are proposed or declared after the reporting period, an entity must not
recognise those dividends as a liability at the reporting period, as they do not meet the criteria of a present obligation. It is
important to note that an entity's past practice of paying dividends does not give rise to a constructive obligation and
therefore still does not warrant the recognition of a liability.

10.3.4 Going concern (IAS 10.14 –.16)

An entity must 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 it has no realistic alternative but to do so.

Deterioration in operating results and financial position after the reporting period may indicate a need to consider whether
the going concern assumption is still appropriate. If the going concern assumption is no longer appropriate, the effect is so
pervasive that this standard requires a fundamental change in the basis of accounting, rather than an adjustment to the
amounts recognised within the original basis of accounting.

Paragraph .25 of the statement on the Presentation of Financial Statements (IAS 1), requires certain disclosures if
a) the financial statements are not prepared on a going-concern basis; or
b) management is aware of material uncertainties related to events or conditions that may cast significant doubt upon the
entity's ability to continue as a going concern. (The events or conditions requiring disclosure may arise after the
reporting period).

The following disclosure is necessary in terms of IAS 1.25 when the financial statements are not prepared on the going-
concern basis:
a) the fact that the statements are not prepared on the going-concern basis;
b) the basis on which the financial statements have been prepared; and
c) the reason why the entity is not considered to be a going concern.

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10.4 SCHEMATIC PRESENTATION OF EVENTS AFTER THE REPORTING PERIOD

Events after the reporting period

are those events, both favourable and unfavourable, that occur between the reporting period and the date on which the
financial statements are authorised for issue

Year-end of financial statements Event after the reporting period Date of authorisation of
financial statements

Adjusting events Non-adjusting events

Events that provide further evidence of conditions that Events that indicate conditions that arose after the
existed at the reporting period reporting period

Adjust assets and liabilities in the financial statements Do not adjust assets and liabilities in the financial
statements

Example Example
Inventories: After the reporting date evidence arise that Inventories: After the reporting date 50% of
there was a manufacturing default which caused a decrease inventories that existed on the reporting date was
in the net realisable value of inventory of R1 000 (before destroyed due to a flood (before authorization of
authorisation of the financial statements) financial statements)

Adjusting journal No adjustment to financial statements

Dr Cr If material disclosed in a note to the annual financial
R R statements
Inventories written off (P/L) 1 000 • nature; and
Inventories (SFP) 1 000 • estimate of financial impact, or statement if not
possible to make such an estimate

10.5 DISCLOSURE (IAS 10.17 –.22)

10.5.1 Date of authorisation for issue (IAS 10.17 –.18)
An entity must disclose the date when the financial statements were authorised for issue and who gave that authorisation.
If the entity's owners or others have the power to amend the financial statements after issuance, the entity must disclose
that fact.

It is important for users to know when the financial statements were authorised for issue, as the financial statements do not
reflect events after this date.

10.5.2 Updating of disclosure about conditions at the reporting date (IAS 10.19 –.20)
If an entity receives information after the reporting period about conditions that existed at the reporting date, the entity
must update disclosures that relate to these conditions, in the light of the new information.

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In some cases, an entity needs to update the disclosures in its financial statements to reflect information received after the
reporting period, even when the information does not affect the amounts that the entity recognises in its financial
statements. One example of the need to update disclosures is when evidence becomes available after the reporting period
about a contingent liability that existed at the reporting date. In addition to considering whether it should now recognise a
provision in terms of IAS 37 – Provisions, contingent liabilities and contingent assets, an entity updates its disclosures about
the contingent liability in the light of that evidence.

10.5.3 Non-adjusting events after the reporting period (IAS 10.21 –.22)
Where non-adjusting events after the reporting period are of such importance that non-disclosure would affect the ability
of the users of the financial statements to make proper evaluations and decisions, an entity must disclose the following
information for each significant category of non-adjusting event after the reporting period:
a) the nature of the event; and
b) an estimate of its financial effect, or a statement that such an estimate cannot be made.

EXAMPLE 4
Busy Bees Ltd is a manufacturer of computer equipment. The company's year-end is 31 December 20.11 and the following
came to your attention before the financial statements were authorised for issue on 16 February 20.12:
1. The market value of a listed investment decreased to R600 000 in January 20.12. Investments are stated at market value.
Assume that the company does not speculate with shares.
2. A debtor with an outstanding balance of R71 500 on 31 December 20.11, was declared insolvent and placed under
liquidation on 20 January 20.12. The liquidator indicated that creditors will receive 30 cents for a rand. No allowance for
credit losses was made at reporting date.
3. On 15 January 20.12 the directors declared a dividend of 10 cents per share for the year ended 31 December 20.11. Busy
Bees Ltd has 100 000 issued ordinary shares.
4. On January 20.12 inventory with a value of R20 000 was destroyed when a store was burnt down during political unrest.

Assume that the company is a going concern.

REQUIRED
a) Define events occurring after the reporting period according to IAS 10.
b) For each of the above events, do the following:
(i) Discuss briefly how the event will affect assets and liabilities in the financial statements;
(ii) Disclose the event in the notes to the financial statements if required.

SOLUTION 4
a) Events after the reporting period are those events, both favourable and unfavourable, that occur between the reporting
date and the date when the financial statements are authorised for issue. Two types of events can be identified:
(i) those that provide evidence of conditions that existed at the end of the reporting period (adjusting events after the
reporting period); and
(ii) those that are indicative of conditions that arose after the reporting date (non-adjusting events after the reporting
period).

b) 1. The decrease in market value in January 20.12 does not normally relate to the condition of
investments at the reporting period but reflects circumstances that have arisen subsequently. Therefore, an entity
does not adjust the amounts recognised in its financial statements for the investments. Thus, additional disclosure
will be required as non-disclosure would affect the ability of the users of financial statements to make proper
evaluations and decisions.

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 Disclosure
BUSY BEES LTD
NOTES FOR THE YEAR ENDED 31 DECEMBER 20.11
Event after the reporting period
The market value of the listed investment decreased to R600 000 in January 20.12.

2. The bankruptcy of a client which occurs after the reporting period usually confirms that a loss already existed at
the reporting date. Thus, the carrying amount of the debtor needs to be adjusted in the financial statements for
the year ended 31 December 20.11.
Journal Dr Cr
R R
Credit losses (P/L) 50 050
Allowance for credit losses (SFP) 50 050
Correction of debtor placed under liquidation
71 500 – (71 500 x 0.30)

3. If dividends are declared after the reporting period, an entity should not recognise those dividends as a liability as
they do not meet the criteria of a present obligation. Thus, it must be disclosed in a note as non-disclosure would
affect the ability of the users of financial statements to make proper evaluations and decisions.
Disclosure
BUSY BEES LTD
NOTES FOR THE YEAR ENDED 31 DECEMBER 20.11
Event after the reporting period
On 15 January 20.12 the directors declared a dividend of R10 000 for the year ended 31 December 20.11.

4. The inventory that was destroyed during January 20.12 in a fire is an event that took place after the reporting
period. There was no liability at the reporting date, thus disclosure will be required as non-disclosure would affect
the ability of the users of financial statements to make proper evaluations and decisions.
Disclosure
BUSY BEES LTD
NOTES FOR THE YEAR ENDED 31 DECEMBER 20.11
Event after the reporting period
In January 20.12 inventory with a value of R20 000 was destroyed when a store was burnt down during political
unrest.

EXAMPLE 5
The directors of Alaska Ltd have asked your assistance in deciding on the most appropriate method for the accounting
treatment of the under mentioned problem at the end of the 20.11 financial year in order to comply with the requirements
of International Financial Reporting Standards.

Alaska Ltd is a listed food preparation company with a 31 December year end. The vast majority of Alaska Ltd's business
includes the preparation of meals for airline companies. On 15 February 20.12 one of the airlines, which was responsible for
80% of Alaska Ltd's profit and 70% of Alaska Ltd's sales, announced that it is not going to renew its contract with Alaska Ltd
for the provision of food on its flights. The renewal date of the contract is 30 June 20.12. Alaska Ltd is in the process of
finalising its financial statements for the year ended 31 December 20.11. Stock exchange regulations require that the
financial statements should be published on or before the 31 March 20.12.

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 REQUIRED
Discuss the appropriate accounting treatment in accordance with International Financial Reporting
Standards of the abovementioned problem in the annual financial statements of Alaska Ltd for the
year ended 31 December 20.11.

SOLUTION 5
The loss on the contract represents an event after the reporting date, as events after the reporting date are those events,
both favourable and unfavourable, that occur between the reporting date and the date when the financial statements are
authorised for issue.

The loss of the contract represents a non-adjusting event after the reporting period, because the event is indicative of
conditions that arose after the reporting date. Therefore, it will not be necessary to adjust assets and liabilities.

The following information about non-adjusting events after the reporting period should be disclosed:
• the nature of the event; and
• an estimate of its financial effect, or a statement that such an estimate cannot be made.

Consideration must be given to whether the going concern assumption is still appropriate. An entity should not prepare its
financial statements on a going-concern basis if events after the reporting period indicate that the going-concern assumption
is no longer appropriate. Current information indicates that a fundamental part of the entity's profit and sales is generated
by the contract. This is sufficient information to prepare the financial statements according to the expected liquidation
values. The shareholders should be informed about the current state of affairs. The above can only be avoided if there is a
possibility of new contracts that can replace the profit and sales.

The following disclosure is necessary in terms of IAS 1.25 when the financial statements are not prepared on the going-
concern basis:
a) the fact that the statements are not prepared on the going-concern basis;
b) the basis on which the financial statements have been prepared; and
c) the reason why the entity is not considered to be a going concern.

10.6 COMPREHENSIVE EXAMPLES

EXAMPLE 6
Tik-Tak Ltd is a manufacturer of electrical equipment. The company’s year-end is 31 December 20.4 and the following came
to your attention before the financial statements were finalised for authorisation on 16 February 20.5:

1. The market value of a listed investment decreased to R500 000 in January 20.5. Investments are stated at market value.
Assume that the company does not speculate with shares.

2. A debtor with an outstanding balance of R51 700 on 31 December 20.4, was declared insolvent and placed under
liquidation on 16 January 20.5. The liquidator indicated that creditors would receive 30 cents in the rand. No allowance
for credit losses was made at reporting date.

3. On 5 January 20.5 the directors declared a dividend of 10 cents per share for the year ended 31 December 20.4. There
are 100 000 issued ordinary shares.

4. During January 20.5 inventory with a value of R16 000 was destroyed when a store was burnt down during political
unrest.

Assume that all amounts are material and that the company is a going concern.

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 REQUIRED
a) Define events occurring after the reporting period according to IAS 10.
b) In each of the above events:
(i) discuss in brief how the event will affect assets and liabilities in the financial statements, i.e.
must the assets and/or liabilities be adjusted or not.
(ii) prepare an extract from the financial statements for the year ended 31 December 20.4 in
which the discussion in (i) is disclosed in accordance with International Financial Reporting
Standards (IFRSs). (Tax consequences need not be disclosed as FAC2601 does not deal with
tax implications).

SOLUTION 6
PART A
Definition
Events occurring after the reporting period are those events, both favourable and unfavourable, that occur between the
reporting date and the date on which the financial statements are authorised for issue.

Two types of events can be identified:

• those that provide further evidence of conditions that existed at the reporting date (adjusting events after the reporting
date), and
• those that are indicative of conditions that arose after the reporting date (non-adjusting events after the reporting date)

PART B
1 (i) Discussion – non-adjusting event
As the decrease in the market value of the listed investment occurred after the reporting date, it is not necessary to make
any adjustments to the assets and liabilities in the financial statements.

1 (ii) Disclosure
TIK-TAK LTD
NOTES FOR THE YEAR ENDED 31 DECEMBER 20.4

10.Events after the reporting period

During January 20.5 the market value of a listed investment decreased to R500 000. The effect is that net profit is reduced
by Rxxx.

2 (i) Discussion – adjusting event

As the amount is included in trade receivables at year-end, the reduction in the recoverability of trade receivables at year-
end is applicable to the current financial year. Adjustments to assets and liabilities are required for events that occur after
the reporting date, and which provide additional information concerning such items in order to determine the amounts in
the statement of financial position.

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2 (ii) Disclosure
TIK-TAK LTD
EXTRACT FROM STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED
31 DECEMBER 20.4
R
Other expenses (Rxxx + R36 190 (1)) xxx

TIK-TAK LTD
EXTRACT FROM STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20.4
ASSETS R
Current assets
Trade receivables (Rxxx − R36 190(1)) xxx

EQUITY AND LIABILITIES

Capital and reserves
Retained earnings (Rxxx − R 36 190(1)) xxx

3 (i) Discussion – non-adjusting event

If dividends to holders of equity instruments are proposed or declared after the reporting date, in this case on 5 January 20.5,
an entity should not recognise those dividends as a liability in the statement of financial position at 31 December 20.4.

3 (ii) Disclosure
TIK-TAK LTD
NOTES FOR THE YEAR ENDED 31 DECEMBER 20.4

10.Events after the reporting period

The directors of the company declared a dividend of 10 cents per share for the year ended 31 December 20.4 on
5 January 20.5. The effect of the dividends declared is that retained earnings are reduced by R10 000.

4 (i) Discussion – non-adjusting event

The loss should not be accounted for in the current financial year (i.e. the asset should not be reduced). The cause of the loss
is a fire that broke out in January 20.5. This does not relate to conditions that existed at year-end.

4 (ii) Disclosure
TIK-TAK LTD
NOTES FOR THE YEAR ENDED 31 DECEMBER 20.4

10.Events after the reporting period

A fire broke out in a store in January 20.5. Inventory valued at R16 000 was destroyed. The effect of this is that net profit is
reduced by Rxxx.

EXAMPLE 7
The financial statements of Penari Ltd are being finalised for the year ended 31 March 20.2. Penari Ltd would like to present
the financial statements to the board of directors for approval for issuance on 10 June 20.2. Uncertainty still exists on the
following matters:

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1. Penari Ltd determined during May 20.2 that a debtor, IOU Ltd, which owes an amount of R20 000 to Penari Ltd at 31
March 20.2, is currently experiencing financial difficulties and will probably not be able to settle its debt. After further
investigation it came to light that the problem has already existed for the past six months, but as Penari Ltd was unaware
of this, the company continued granting credit to IOU Ltd. The result is that an amount of R35 000 was owed by IOU Ltd
at 31 May 20.2.

2. Due to a cloud burst during the first week in April 20.2 the basement level of Penari Ltd’s premises was flooded, resulting
in the total destruction of the inventory stored there. The cost of the inventory amounting to R75 000 is included in the
inventory figure in the financial statements at 31 March 20.2.

3. On 31 March 20.2 Penari Ltd had 800 items on hand at a cost of R16 000. During April 20.2 Penari Ltd determined that
half of these inventory items on hand at 31 March 20.2 had a defect due to a manufacturing error. The defective items
can be sold for R5 each and the costs to repair the machine will be R15 000.

REQUIRED
a) State, in each of the above cases, whether an adjusting or non-adjusting event occurred.
b) Briefly discuss how the event will affect the financial statements of Penari Ltd for the year ended
31 March 20.2, according to the requirements of the International Financial Reporting Standards
(IFRSs). Give reasons for your answers.
c) Prepare the journal entry (if any) in each of the above cases in the accounting records of Penari
Ltd for the year ended 31 March 20.2.

SOLUTION 7
1a.Identification
Adjusting event – provides further evidence of conditions that existed at the reporting date.

1b. Disclosure
The facts indicate that an asset was impaired at the reporting date. The amount owing by IOU Ltd at 31 March 20.2
amounting to R20 000 should be written off as credit losses in the financial statements at 31 March 20.2. The additional
amount of R15 000 supplied on credit after 31 March 20.2 refers to the next period and does not influence the financial
statements at 31 March 20.2.
1c. Journal
Debit Credit
R R
Credit loss / Impairment loss (P/L) 20 000
Allowance for credit losses (SFP) 20 000
Recognise impairment of the debtor at year end.

2a.Identification
Non-adjusting event – indicative of conditions that arose after the reporting date.

2b. Disclosure
The loss should not be recognised in the financial statements at 31 March 20.2 as it refers to the following period. It should,
however, be disclosed as a note if the non-disclosure thereof will affect the ability of users to make proper evaluations or
decisions.
2c. Journal
No journal entry should be made for the year ended 31 March 20.2

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3a.Identification
Adjusting event – provides further evidence that an asset was impaired at the reporting date.

3b. Disclosure
Penari Ltd should write off R6 000 [400 x ((R16 000/800) − R5)] of inventory in the financial statements at 31 March 20.2.
This will decrease the value of the defective inventory to the lower of cost and net realisable value. The costs to repair the
machine will only be recognised when it is incurred, i.e. in the following period.
3c. Journal
Debit Credit
R R
Inventory written-down (P/L) 6 000
Inventory (SFP) 6 000
Recognise inventory at the lower of cost and net realisable value.

10.7 ASSESSMENT CRITERIA

ASSESSMENT CRITERIA YES NO
After having worked through this learning unit, are you now able to do the
following?
1. Identify the purpose of IAS 10.
2. Define events after the reporting period.
3. Differentiate between adjusting and non-adjusting events after the reporting
date.
4. Recognise and measure adjusting events after the reporting date.
5. Disclose material non-adjusting events after the reporting date.

If you answered “Yes” to all of the above assessment criteria, you have covered this learning unit and can now focus on
revising it for the test and exam.
If you answered “No” to any of the above criteria, revise the section concerned before commencing with the revision of the
study material.

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