IAS 10 by KA & AJ

Your name and SKANS ID? e.g. [Ali Jawad 123456]

Assume today is 4 April 2023 and board meeting for authorisation of financial statements is due in two days. AJ Limited is in the process of finalising its financial statements for the year ended 31 December 2022. Inventory carried at Rs. 25 million on 31 December 2022 that was sold for Rs. 15 million in January 2023 because it had been damaged in a flood on 28 December 2022.

What will be appropriate accounting treatment in financial statements for the year ended 31 December 2022?

• Adjust the financial statements and update the disclosures accordingly.

• Disclose the matter in financial statements only without any adjustments.

• Do nothing.

Answer explanation

Damage occurred before year-end, therefore, conditions existed at year end.

Assume today is 4 April 2023 and board meeting for authorisation of financial statements is due in two days. AJ Limited is in the process of finalising its financial statements for the year ended 31 December 2022. On 10 February 2023, the government has announced a retrospective decrease in the tax rate applicable to the company, that will be significantly beneficial for our company.

What will be appropriate accounting treatment in financial statements for the year ended 31 December 2022?

• Adjust the financial statements and update the disclosures accordingly.

• Disclose the matter in financial statements only without any adjustments.

• Do nothing.

Answer explanation

The subsequent change in law arose after year end and therefore it is non-adjusting event. However, it shall be disclosed since effect is significant.

Assume today is 4 April 2023 and board meeting for authorisation of financial statements is due in two days. AJ Limited is in the process of finalising its financial statements for the year ended 31 December 2022. On 17 January 2023, AJ Limited has disposed of one of its major subsidiary Ali Limited, the gain on disposal was not material.

What will be appropriate accounting treatment in financial statements for the year ended 31 December 2022?

• Adjust the financial statements and update the disclosures accordingly.

• Disclose the matter in financial statements only without any adjustments.

• Do nothing.

Answer explanation

Disposal after the year-end is non-adjusting event. Although the gain on disposal is immaterial. The disposal of a major subsidiary in itself is material transaction for which disclosure is required.

Assume today is 4 April 2023 and board meeting for authorisation of financial statements is due in two days. AJ Limited is in the process of finalising its financial statements for the year ended 31 December 2022. One of the customers had filed a case against AJ Limited on 15 December 2022 for delivery of faulty goods. The matter was settled out of court by paying significant amount on 15 February 2023.

What will be appropriate accounting treatment in financial statements for the year ended 31 December 2022?

• Adjust the financial statements and update the disclosures accordingly.

• Disclose the matter in financial statements only without any adjustments.

• Do nothing.

Answer explanation

The dispute and litigation existed at year-end.

Assume today is 4 April 2023 and board meeting for authorisation of financial statements is due in two days. AJ Limited is in the process of finalising its financial statements for the year ended 31 December 2022. On March 7, 2023 AJ Limited announced to discontinue producing its Product C due to heavy losses. Product C represented 17% of total revenue of AJ Limited.

What will be appropriate accounting treatment in financial statements for the year ended 31 December 2022?

• Adjust the financial statements and update the disclosures accordingly.

• Disclose the matter in financial statements only without any adjustments.

• Do nothing.

Answer explanation

The discontinuation arose after year end. However, 17% revenue is clearly material.

Assume today is 4 April 2023 and board meeting for authorisation of financial statements is due in two days. AJ Limited is in the process of finalising its financial statements for the year ended 31 December 2022. A major local customer has settled his full balance after receiving bank loan on 10 February 2023. At year-end, the customer was facing financial difficulty and therefore AJ Limited had provided 40% of his balance as doubtful receivable.

What will be effect on profit for the year ended 31 December 2022?

• Increase by 40% year-end balance.

• Decrease by 40% year-end balance.

• No effect

• Increase by 100% of year-end balance.

Answer explanation

The financial position of customer has improved after year-end upon obtaining the bank loan so it is a non-adjusting event. The provision on this customer balance would remain in the books and it would not affect the profit for 2022.