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ACCA Applied Knowledge · Financial Accounting · Events after the reporting period

Bolt Co has a reporting date of 31 December 20X5. The financial statements were authorised for issue on 20 March 20X6. Which of the following is an adjusting event?

The customer's insolvency is the adjusting event. It gives further evidence of the customer's condition at the reporting date, so the receivable should be written off or impaired in the year-end accounts. The fire, dividend proposal and competitor acquisition relate to post-year-end conditions.

  1. AA fire on 10 February 20X6 destroyed a warehouse
  2. BA customer, who owed $40,000 at 31 December 20X5, was declared insolvent on 15 February 20X6 due to trading losses before the year endCorrect
  3. CThe directors proposed a final dividend on 5 March 20X6
  4. DA major competitor was acquired on 1 March 20X6

Explanation

Insolvency of a customer after the reporting date provides evidence of conditions existing at the reporting date (the receivable was already impaired), so it is adjusting. The fire, the dividend proposal and the acquisition arose from conditions after the reporting date, so they are non-adjusting or not recognised.

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