Skip to content

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

Glenfield Co has a reporting date of 31 December 20X5 and its financial statements were authorised for issue on 15 March 20X6. On 20 February 20X6 a major customer, Brightway Ltd, was placed into liquidation after a prolonged decline in its finances. Glenfield held a receivable of $400,000 from Brightway at 31 December 20X5 and had treated it as fully recoverable. How should Glenfield treat this event?

Glenfield should adjust its financial statements and impair the receivable. The customer's poor finances existed at the reporting date, so the post-period liquidation gives evidence of conditions at that date. That makes it an adjusting event under IAS 10 rather than a disclosure-only matter.

  1. AAdjust the financial statements to impair the receivable, as the liquidation provides evidence of conditions existing at the reporting dateCorrect
  2. BDisclose the liquidation as a non-adjusting event without changing the receivable
  3. CMake no adjustment or disclosure because the event occurred in the following year
  4. DRecognise a provision only if the liquidation was announced before 31 December 20X5

Explanation

The customer's deteriorating finances existed at the reporting date, and the liquidation in February confirms the loss. Under IAS 10 this is an adjusting event, so the receivable is written down. Disclosure only would be wrong because adjusting events must be recognised in the amounts.

Did you get it right without looking?

One question tells you little. A timed set on Provisions, contingencies and events after the reporting period shows your real accuracy, how long you take and where you lose marks.

Practise Provisions, contingencies and events after the reporting periodFree diagnostic mock

More Provisions, contingencies and events after the reporting period questions