IAS – 2 & 10
1. U co. manufactures motors for domestic refrigerators. A major customer is the B co., which is a
major international electrical co. making refrigerators as one of its products.
U co. is currently preparing its financial statements for the year to 31st December 2017 and it expects
to authorize them for issue on 3 March 2018.
U co. holds significant inventories of motors (which are unique to B Co. contract) as B co., require to
be supplied on a Just – In – Time basis and has variable production schedules.
On 3 January 2018, B Co. announced that it was fundamentally changing the design of its refrigerators and
that, while this had been planned for some time, it hand not been possible to warm U for reasons for
commercial confidentiality. As a consequence, it would cease to use U Co’s motors from 30th April 2018
and would reduce production prior to that date. Details of U Co’s are as follows:
Number of motors held in inventory at 31st December
Expected sale to four months to 30th April, 2018
Net selling price motors sold to B Co.
Net selling price per motor unsold at 30th April 2018
Cost per motor
Requirement:
4,000 motors
1,600 motors
tk. 50
tk. 10
tk. 25
At what value should the inventories of motors be stated by U Co. in its statement of financial position at
31st December 2017 according IAS 2 Inventories and IAS 10 Events After the Reporting period?
Solution:
IAS - 2.30 requires that NRV of the inventories to be calculated on the basis of all relevant information,
including even after the reporting period. This is reported by the example in IAS - 10.9 (1):
Thus, $25*1600 expected to be sold to B co.
$40,000
$10*2400 reminder
$24,000
$64000
2. The Roach com. Is completing the preparation of its draft financial statements for the year ended
31 may 2016. On the 24 July 2016 an entity dividend of BDT 200000 was declared and a
contractual profit share payment of BDT 35000 tk. was made, both based on the profit for the year
to 31 may 2016. ON 20 June 2016, a customer went into liquidation having owed the com, BDT
31000 for the past six months. No provision had been made against the debt. On 17 July 2016, a
manufacturing plant was destroyed by fire resulting in a financial loss of BDT 200000.
Requirement:
According to BAS 10 Events After the Reporting Period, which amounts should be recognized in
Roach’s financial statements for the year to 31 May 2016 to reflect adjusting events after the reporting
period.
Solution:
(i) As para - 12 IAS -10, “if the entity declares dividend to holders of equity instrument after the
reporting period, the entity shall not recognize those dividends as a liability at the end of the reporting
period.”
So, declare equity dividend shall not be recognized as a liability as per IAS - 10.
But, as per IAS - 10 para 9(B), profit sharing or bonus payment is the adjusting event. Show
tk.35,000 should be recognized in the financial Statements.
(ii) As per para 9(B)(1) of IAS - 10, “The bankruptcy of a customer that occurs after the reporting
period usually confirm that the customer was credit impaired at the end of the reporting period.
So, tk.31,000 should be recognized as a bad debt. Expense.
(iii) As per para 22(D) of IAS - 10, the destruction a major production plant by a fire after the
reporting period is an example of non - adjusting event.
An entity’s draft financial statements for the year ended 31st December 2013 were completed 30 May
2014, approved by the finance director on 7 June 2014, authorized for issue on 201 June 2014 and
approved by the shareholders on 5 July 2014.
3. The following events occurred after the reporting date (assume all amounts are significant to the
entity):
a) Notification on 18th February 2014 that a customer owing BDT. 1,00,000 as at 31st December
2013 has gone into liquidation. The financial statements already include a specific provision
of BDT. 20,000 for this customer and the entity does not make general provisions.
b) A right issue on 6th April 2014 to raise 1,500,000 for an acquisition.
c) Confirmation on 28 May 2014 from the entity's ensurer that they will pay BDT. 5,00,000 for
inventories that were destroyed in fire on 24th December 2013. The entity had claimed BDT.
6,50,000 and included this as a receivable in the financial statements.
Requirement: How should the entity treat these events in the financial statements?
Solution:
a. This is an adjusting event as if provides more up to date into about a conditions that was
recognized at the reporting date tk. 1,00,000 receivable should be written off.
b. This a disclosable non - adjusting event. The right issue occured after the reporting period,
but it is considered to be significant importance & should be disclosed in the FS.
c. This is an adjusting event since its in relation to the assets that was recognized at the
reporting date. The receivable should be reduced tk. 5,00,000.