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ACCA Strategic Professional · Strategic Business Reporting (International) · Provisions, contingencies and events after the reporting period

Brava plc has a 31 March 20X6 year end and the financial statements were authorised on 20 June 20X6. On 15 May 20X6 a fire destroyed a warehouse holding inventory carried at $2.5 million, which was not insured. Which treatment is correct under IAS 10?

No adjustment is made, but the nature of the fire and an estimate of its financial effect must be disclosed. The fire occurred after the reporting date and did not reflect conditions at year end, so it is a material non-adjusting event under IAS 10.

  1. AAdjust inventory to nil in the 20X6 statements because the loss is material
  2. BMake no adjustment, but disclose the nature of the event and an estimate of its financial effectCorrect
  3. CMake no adjustment and no disclosure because it arose after the year end
  4. DRecognise a provision at 31 March 20X6 for the expected loss

Explanation

The fire arose after the reporting date from conditions that did not exist at 31 March, so it is non-adjusting. Because it is material, IAS 10 requires disclosure of its nature and an estimate of the financial effect. Recognising a provision would create a liability that did not exist at the reporting date.

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