FR - IAS 37 & IAS 10 , IAS 21

Using the requirements set out in IAS 10 Events after the Reporting Period, which of the following would be classified as an adjusting event after the reporting period in financial statements ended 31 March 20X4 that were approved by the directors on 31 August 20X4?

• A reorganisation of the enterprise, proposed by a director on 31 January 20X4 and agreed by the Board on 10 July 20X4.

• A strike by the workforce which started on 1 May 20X4 and stopped all production for 10 weeks before being settled.

• The receipt of cash from a claim on an insurance policy for damage caused by a fire in a warehouse on 1 January 20X4. The claim was made in January 20X4 and the amount of the claim had not been recognised at 31 March 20X4 as it was uncertain that any money would be paid. The insurance enterprise settled with a payment of $1.5 million on 1 June 20X4.

• The enterprise had made large export sales to the USA during the year. The year-end receivables included $2 million for amounts outstanding that were due to be paid in US dollars between 1 April 20X4 and 1 July 20X4. By the time these amounts were received, the exchange rate had moved in favour of the enterprise.

Target is preparing its financial statements for the year ended 30 September 20X7. Target is facing a number of legal claims from its customers with regards to a faulty product sold. The total amount being claimed is $3.5 million. Target’s lawyers say that the customers have an 80% chance of being successful.

According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, what amount, if any, should be recognised in respect of the above in Target’s statement of financial position as at 30 September 20X7? $_____________,000

• $3,500,000

• $3,50,000

• $2,800,000

• None of them

Identify whether the statements below are true or false:

• True, True

• True, False

• False, False

• False, True

Candel Co is being sued by a customer for $2 million for breach of contract over a cancelled order. Candel Co has obtained legal opinion that there is a 20% chance that Candel Co will lose the case. Accordingly Candel Co has provided $400,000 ($2 million × 20%) in respect of the claim. The unrecoverable legal costs of defending the action are estimated at $100,000. These have not been provided for as the case will not go to court until next year. What is the amount of the provision that should be made by Candel Co in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets?

• $80,000

• $20,00,000

• $21,00,000

• $100,000

Which of the following events taking place after the year end but before the financial statements were authorised for issue would require adjustment in accordance with IAS 10 Events After the Reporting Period?

• Three lines of inventory held at the year end were destroyed by flooding in the warehouse.

• The directors announced a major restructuring.

• Two lines of inventory held at the year end were discovered to have faults rendering them unsaleable.

• The value of the company's investments fell sharply.

Identify whether the following statements are true or false in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets?

• True, True, False, True

• True, False, True, False,

• False, False, True, False

• False, True, False, True,

Which of the following events which occur after the reporting date of a company but before the financial statements are authorised for issue are classified as ADJUSTING events in accordance with IAS 10 Events After the Reporting Period?

• A change in tax rate announced after the reporting date, but affecting the current tax liability

• The discovery of a fraud which had occurred during the yea

• The determination of the sale proceeds of an item of plant sold before the year end

• The destruction of a factory by fire

Which of the following statements are correct in accordance with IAS 37 Provisions, contingent liabilities and contingent assets?

(i) Provisions should be made for both constructive and legal obligations.

(ii) Discounting may be used when estimating the amount of a provision.

(iii) A restructuring provision must include the estimated costs of retraining or relocating continuing staff.

(iv) A restructuring provision may only be made when a company has a detailed plan for the restructuring and has communicated to interested parties a firm intention to carry it out.

• All four statements are correct

• (i), (ii) and (iv) only

• (i), (iii) and (iv) only

• (ii) and (iii) only

Which one of the following events taking place after the year end but before the financial statements were authorised for issue would require adjustment in accordance with IAS 10 Events after the reporting period?

• Three lines of inventory held at the year end were destroyed by flooding in the warehouse.

• The directors announced a major restructuring.

• Two lines of inventory held at the year end were discovered to have faults rendering them unsaleable

• The value of the company's investments fell sharply.

Rainbird decided to reorganise a manufacturing facility during November 20X1 and commissioned a consulting engineer to carry out a feasibility study. A provision for the reorganisation was created at 31 December 20X1.

Staff functions will change following the reorganisation, so in December 20X1 Rainbird contracted with a training company to provide retraining to take place in January 20X2. A provision for this expenditure was created at 31 December 20X1.

Rainbird hopes that reorganising its manufacturing facility will improve quality control. It gives a one-year warranty with all products and the rate of returns under warranty is 12%. 5% of the returned items can be repaired at a cost of $5 (free of charge to the customer). The other 95% are scrapped and a full refund of $30 is given. Rainbird sold 525,000 units during the year to 31 December 20X1.

In five years’ time Rainbird will have to dismantle its factory and return the site to the local authority. A provision was set up for the present value of the dismantling costs when the factory was first acquired. The opening balance on the provision at 1 January 20X1 was $2.63 million. Rainbird has a cost of capital of 8%.

Rainbird’s accountant is preparing the financial statements for the year to 31 December 20X1 and is not too sure about the provisions set up for the reorganisation of the facility and the staff training.

Which of these is a correct provision under IAS 37?

• The reorganisation

• The staff training

• The reorganisation and the staff training

• Neither the reorganisation nor the staff training