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

Delta Co has a reporting date of 31 December 20X5 and its financial statements were authorised for issue on 20 March 20X6. On 10 February 20X6 a fire destroyed a warehouse that held inventory worth $400,000, none of which was insured. The warehouse was in good condition at the reporting date. How should this be treated in the 20X5 financial statements?

The fire is a non-adjusting event because the warehouse and inventory were in good condition at the reporting date. No figures are changed, but a material event must be disclosed with its nature and an estimate of its financial effect.

  1. AAdjust inventory and recognise a $400,000 loss in 20X5
  2. BDisclose the nature of the event and an estimate of its financial effect, with no adjustmentCorrect
  3. CMake no disclosure because the event occurred in 20X6
  4. DCreate a provision for $400,000 at 31 December 20X5

Explanation

The fire occurred after the reporting date and does not provide evidence of conditions existing at the reporting date, so it is a non-adjusting event. IAS 10 requires disclosure of its nature and estimated financial effect if material. Adjusting inventory would be wrong because the inventory was fine at the year end.

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