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

Delta Co's year end is 31 December 20X5 and its financial statements were authorised on 15 April 20X6. Profits had been strongly positive, but in March 20X6 the directors decided to liquidate the company because of a collapse in demand that began in February 20X6. Which statement is correct?

The statements must not be prepared on a going concern basis. IAS 10 requires this where management decides after the reporting period to liquidate or cease trading, even if the decision follows the year end, because the deterioration is pervasive and overrides the usual non-adjusting treatment.

  1. APrepare the statements on a going concern basis and disclose the liquidation as a non-adjusting event
  2. BPrepare the statements on a going concern basis with a provision for liquidation costs at 31 December 20X5
  3. CPrepare the statements on a going concern basis, since the decision was made after the reporting date
  4. DDo not prepare the statements on a going concern basis, because the deterioration after the reporting date is so pervasiveCorrect

Explanation

IAS 10 states that if management determines after the reporting period that it intends to liquidate or cease trading, or has no realistic alternative, the financial statements must not be prepared on a going concern basis. This overrides the normal non-adjusting treatment, and the effect is pervasive. Disclosure alone, as in option 1, is insufficient.

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