ACCA Applied Knowledge · Financial Accounting · Events after the reporting period
Before the financial statements of Dunmore Co for the year ended 31 March 20X6 were authorised for issue, the directors concluded in May 20X6 that the company has no realistic alternative but to cease trading, following a major customer's insolvency. Which statement is correct under IAS 10 and IAS 1?
The financial statements must be prepared on a basis other than going concern. IAS 10 says that if, after the reporting period, management decides to cease trading or has no realistic alternative, the going concern assumption is no longer appropriate, even though the event occurred after the year end.
- ADisclose the matter as a non-adjusting event and continue to use the going concern basis
- BAdjust only the receivable from the customer and keep the going concern basis
- CPrepare the financial statements on a basis other than going concern, as this is an adjusting-type eventCorrect
- DMake no change because the deterioration occurred after the reporting date
Explanation
IAS 10 states that a deterioration in operating results and financial position after the reporting period may indicate the going concern assumption is no longer appropriate. If management intends to liquidate or cease trading, the financial statements must not be prepared on a going concern basis, and this applies even if the event occurs after the reporting date. Disclosure alone is insufficient.
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