IAS 10 | Assessment Questions
Question 1: Authorization of financial statements
Difficulty: ✭ ✭ ✭
ABC PLC has recently issued financial statements for the year ended 31 December 2014.
Following timeline of events preceded the issuance of financial statements:
|31 December 2014||Year End.|
|10 January 2015||Preparation of financial statements.|
|20 January 2015||Approval by the Audit Committee for presentation of financial statements to the Board of Directors for their approval.|
|25 January 2015||Public announcement of key financial results.|
|26 January 2015||Approval by Board of Directors for the presentation of financial statements at the Annual General Meeting (AGM) for approval by the shareholders.|
|28 January 2015||Approval of financial statements by shareholders at the AGM.|
|30 January 2015||Issuance of copies of annual report to shareholders.|
What is the last relevant date for the consideration of the Events After Reporting Period of the issued financial statements?
Question 2: Subsequent Events
Difficulty: ✭ ✭ ✭
DEF PLC is in the process of issuing its financial statements for the year ended 30 June 2014.
In a meeting of Board of Directors held on 31 August 2014, the directors authorized the issue of financial statements to shareholders.
Consider the impact (if any) of the following events after the reporting period on the financial statements of DEF PLC for the year ended 30 June 2014 assuming they have not already been accounted for:
|a)||In a meeting held on 10 July, the Board of Directors announced a final dividend of $0.5 per share for the year ended 30 June 2014.|
How should the final dividend be accounted for in the financial statements for the year ended 30 June 2014?
During the year, a customer had sued DEF PLC for damages that he claims to have suffered as a direct result of the faulty goods supplied to him by DEF PLC.|
At the year end, the litigation was in process and the Court had not reached a verdict. The Company's legal advisors suggested that the chance of an adverse opinion against DEF PLC was very low as the contract with the customer explicitly states that the company shall not be liable to such claims. Consequently, no liability was recognized in the financial statements and neither was the contingency disclosed.
On 28 August 2014, the court issued a verdict against DEF PLC and ordered the payment of damages amounting $5 million to the claimant within 30 days.
The CFO is of the view that the financial statements need not be adjusted because the obligation to pay damages to the customer arose after the year end upon the decision of the court.
How should the liability for payment of damages be accounted for in the financial statements for the year ended 30 June 2014?
DEF PLC suffered losses on their sales in the first week of July 2014 due to a decrease in the prices of their products.|
The reduction in price was caused by falling demand of the Company's products due to the unexpected launch of technologically superior products by its competitor on 30 June 2014.
The CFO is of the view that because the sales were transacted after the year end, the associated loss should be recognized in the next accounting period in line with the matching principle.
How should the decrease in inventory prices be accounted for in the financial statements for the year ended 30 June 2014?
JFK PLC, a customer of DEF PLC, was declared bankrupt on 5 July 2014 due to its deteriorating liquidity position after the withdrawal of financial support by its bank since the past 3 months. |
DEF PLC was owed a material amount by JLK PLC as at 30 June 2014 which will not be recoverable.
How should bankruptcy of the customer be accounted for in the financial statements for the year ended 30 June 2014?
On 24 July 2014, a major earthquake disrupted the entire operations of DEF PLC. The Company suffered great loss due to the damage caused to its factories and other business premises.|
The Company's insurance policy does not cover the risk of loss arising from natural disasters. The Company does not have sufficient internal funds or the availability of external finance to rebuild the infrastructure necessary for it to resume its business operations. Consequently, DEF PLC is unlikely to operate as a going concern in the foreseeable future.
How will the change in going concern status of DEF PLC be reflected in its financial statements for the year ended 30 June 2014?