DE LA SALLE UNIVERSITY MANILA

RVR COB DEPARTMENT OF ACCOUNTANCY

REVDEVT 1st Term AY 14-15

Theory of Accounts
TOA Lecture 7

Prof. Francis H.Villamin

IAS 10 EVENTS AFTER THE REPORTING PERIOD

1. Overview
IAS 10 deals with the effects of events after the reporting period on an entitys financial statements (IAS 10.1
10.2). IAS 10 defines events after the reporting period as events that occur after an entitys reporting
period, but before the date when the financial statements are authorized for issue. The date that the
financial statements are authorized for issue is generally the date at which the financial statements are
authorized and issued by management, either to the shareholders or to a supervisory board (made up solely
of non-executives), if given. Even if the shareholders or a supervisory board are required to approve the
financial statements, the date of authorization for issue is the date of authorization by management (IAS 10.5
10.6). Financial statements do not reflect events after the date when the financial statements were
authorized for issue (IAS 10.18).
It can be deduced from the information above that not all events after the reporting period are within the scope
of IAS.10:

Start of the
reporting period

End of the
reporting period

Financial Statements
are authorized for
issue

Information
made public

Shareholder meeting

Events after the

Events after the reporting period not
reporting period covered
covered by IAS 10
by IAS 10
Events after the reporting period within the scope of IAS 10 can be subclassified as follows (IAS 10.13):

Adjusting events: These events provide evidence of conditions that existed at the end of the
reporting period (i.e. at the balance sheet date). Amounts recognized in the financial statements are
adjusted in order to reflect adjusting events. It may also be necessary to recognize items that were
not previously recognized or to update disclosures in the notes due to adjusting events (IAS 10.8 and
10.19 10.20).
Non-adjusting events: These events are indicative of conditions that arose after the reporting
period. Amounts recognized in the financial statements are not adjusted for such events (IAS 10.10).
However, it is necessary to disclose the following for each material category of non-adjusting events
after the reporting period (IAS 10.21):
The nature of the event.
An estimate of its financial effect or a statement that such an estimate cannot be made.

Examples of non-adjusting events after the reporting period that would generally result in disclosure are a
major business combination, a disposal of a major subsidiary, and an announcement of a plan to discontinue
an operation (IAS 10.22).

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IAS 10 Events after the Reporting Period

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If an entity declares dividends after the reporting period (non-adjusting event), the entity must not recognize
those dividends as a liability at the end of the reporting period because no obligation exists at that time (IAS
10.12 10.13).
The financial statements must not be prepared on a going concern basis if management determines in or
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 (IAS 10.14 10.15). This rule constitutes a departure from the general
principles of IAS 10.

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QUIZZER IAS 10 EVENTS AFTER THE REPORTING PERIOD

1.

Events after the end of the reporting period are:

a. adjusting events only.
b. nonadjusting events only.
c. both adjusting and nonadjusting events only.
d. neither adjusting nor nonadjusting events.

2.

In relation to a set of 2015 financial statements, an event after the reporting period is one that
a. occurs before the 2015 financial statements are issued.
b. involves uncertainty as to possible gain or loss that will ultimately be resolved in 2015 or later.
c. occurs after the 2015 financial statements are issued.
d. requires an appropriate adjusting entry to be made as of the end of 2015.

3.

Nonadjusting events after the end of the reporting period are accounted for by
a. adjusting the amounts recognized in the financial statements.
b. not adjusting the amounts in the financial statements without disclosure.
c. not adjusting the amounts in the financial statements but without disclosure.
d. recognizing the events directly in equity.

4.

An entity built a new factory building during 2014 at a cost of P20 million. At December 31, 2014, the net
book value of the building was P19 million. Subsequent to year-end, March 15, 2015, the building was
destroyed by fire and the claim against the insurance company proved futile because the cause of the
fire was negligence on the part of the caretaker of the building. If date of authorization of the financial
statements for the year ended December 31, 2014, was March 31, 2015, the entry should
a. write off the net book value to its scrap value because the insurance claim would not fetch any
compensation.
b. make a provision for half of the net book value of the building.
c. make a provision for three-fourths of the net book value of the building based on prudence.
d. disclose this nonadjusting event in the footnotes.

5.

Financial statements are said to be authorized for issue when

a. the financial statements are filed with the SEC.
b. the shareholders approve the financial statements at their annual meeting.
c. the management is required to submit the financial statements to supervisory body made up solely of
nonexecutives and the supervisory body approves the financial statements.
d. the management (board of directors) reviews the financial statements and authorizes them for issue.

6.

Adjusting events after the end of the reporting period include all of the following, except
a. The resolution after the end of the reporting period of a court case.
b. The bankruptcy of a customer, which occurs after the end of the reporting period resulting to a loss
on a trade receivable account.
c. The discovery of fraud of errors that show that the financial statements were incorrect.
d. Dividends to holders of equity instruments proposed or declared after the end of the reporting period.

7.

Nonadjusting events after the end of the reporting period include all of the following, except
a. a major business combination after the end of the reporting period.
b. expropriation of major assets by government after the end of the reporting period.
c. destruction of a major production plant by fire on or before the end of the reporting period.
d. announcing a plan to discontinue an operation after the end of the reporting period.

8.

Nonadjusting events after the end of the reporting period include all of the following, except
a. a major business combination after the end of the reporting period.
b. expropriation of major assets by government after the end of the reporting period.
c. destruction of a major production plant by fire after the end of the reporting period.
d. the determination between the end of the reporting period and the date the financial statements are
authorized for issue of the amount of profit sharing or bonus payments if the entity has a present
obligation at the end of the reporting period to make such payments as a result of events before that
date.

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9.

In respect of loans classified as current liabilities, all of the following events would qualify for disclosure
as nonadjusting events, except
a. refinancing on long-term basis occurring between the end of the reporting period and the date the
financial statements are authorized for issue.
b. refinancing on a long-term basis occurring on or before the end of the reporting period.
c. rectification of a breach of long-term loan agreement occurring between the end of the reporting
period and the date the financial statements are authorized for issue.
d. receipt from a lender of a grace period to rectify a breach of a long-term loan agreement ending at
least twelve months after the end of the reporting period and before the financial statements are
authorized for issue.

10.

Adjusting events after the end of the reporting period include all of the following, except
a. the resolution after the issuance of the financial statements that confirms that the entity has a
present obligation.
b. the bankruptcy of a customer, which occurs after the end of the reporting period and before the
issuance of the statements resulting to a loss on a trade receivable account.
c. the discovery of fraud or errors after the end of the reporting period and before the issuance of the
statements that the financial statements were incorrect.
d. determination after the end of the reporting period and before the issuance of the statements of the
cost of the assets purchased before the end of the reporting period.

11.

The audit of Serenity Company for the year ended December 31, 2014 was completed on March 1, 2015.
The financial statements were signed by the managing director on March 15, 2015 and approved by the
shareholders on March 31, 2015. The next events have occurred
On January 15, 2015, a customer owing P900,000 to Serenity filed for bankruptcy. The financial
statements include an allowance for doubtful debts pertaining to this customer of P100,000.
Specialized equipment costing P525,000 purchased on September 1, 2014 was destroyed by fire on
December 15, 2014. Serenity Company has booked a receivable of P400,000 from the insurance
company. After the insurance company completed its investigation on February 1, 2015, it was
discovered that the fire took place due to the negligence of the machine operator. As a result, the
insurers liability was zero on this claim.
Serenity Companys issued capital comprised 100,000 equity shares with P100 par value. The
company issued additional 25,000 shares on March 1, 2015.
Serenity Company should report a net amount of adjusting events on December 31, 2014 at
a. 1,300,000
b. 1,200,000
c. 3,800,000
d. 3,700,000

12.

Nonadjusting events after the end of the reporting period include all of the following, except
a. decline in market value of investments between the balance sheet date and the date when the
financial statements are authorized for issue.
b. the bankruptcy of a customer, which occurs after the end of the reporting period and before the
issuance of the statements resulting to a loss on a trade receivable account.
c. a major business combination after the balance sheet date.
d. abnormally large changes after the balance sheet date in asset prices or foreign exchange rates.

13.

Adjustments of financial statements are required for those events after the end of the reporting period
which
a. have a material effect on a users evaluation of the information presented in the financial statements.
b. occurred prior to issuance of the financial statements.
c. are unusual and material.
d. provide additional information for determining the amounts relating to conditions existing at the end
of the reporting period.

14.

Nonadjusting events after the end of the reporting period should be disclosed if
a. nondisclosure would affect the amounts presented in the financial statements.
b. nondisclosure would affect the ability of users of the financial statements to make proper valuations
and decisions.
c. they relate to conditions existing at the end of the reporting period.
d. they are unusual and material.

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15.

The following are adjusting events after the end of the reporting period except
a. resolution of a court case after the end of the reporting period.
b. dividends to holders of equity instruments that are proposed or declared after the end of the
reporting period.
c. information received after the end of the reporting period indicating that an asset was impaired at the
end of the reporting period.
d. discovery of fraud or errors that show that the financial statements were incorrect.

16.

What are the disclosures required for nonadjusting events?

a. The nature of the event.
b. An estimate of its financial effect.
c. A statement that the estimate of its financial effect cannot be made.
d. All of the above.

17.

Which of the following statements is true under IAS 10?

I. Notes to the financial statements should give details of all material adjusting events included in those
financial statements.
II. Notes to the financial statements should give details of material nonadjusting events, which could
influence the economic decisions of users.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

18.

Between the date the financial statements and the date on which they were due to be authorized for
issue, a number of events took place. All of the following events should be classified as nonadjusting
events requiring disclosure except
a. the entity announced the discontinuation of its assemble operations.
b. the entity entered into an agreement to purchase the freehold of its currently leased office buildings.
c. destruction of major production plant by fire.
d. a mistake was discovered in the calculation of the allowance for uncollectible trade receivables
resulting to the understatement of the trade receivables.

19.

An entity decided to operate a new amusement park that will cost a huge amount to build in 2015. The
entity has applied for a letter of guarantee for a certain amount. The letter of guarantee was issued on
March 31, 2015. The financial statements have been authorized for issue on April 15, 2015. Under IAS
10, on December 31, 2014, the entity is required to
a. book a long-term payable for the amount of the guarantee.
b. disclose the amount of guarantee as a contingent liability.
c. increase the contingency reserve by the amount of guarantee.
d. do nothing.

20.

On December 31, 2015, an entity carried a receivable from a major customer. The authorization date of
the financial statements is on February 16, 2016. The customer declared bankruptcy on February 15,
2016. The entity should
a. disclose the fact that the customer has declared bankruptcy.
b. make a provision for this event in its financial statements as opposed to a disclosure.
c. ignore the event and wait for the outcome of the bankruptcy because the event took place after the
yearend.
d. reverse the sale pertaining to this receivable in the comparative statement for the prior period.

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