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

Harlow Co has 4,000,000 $1 equity shares in issue throughout the year ended 31 December 20X5. Profit for the year was $1,200,000. On 20 February 20X6 the directors proposed a final dividend of $0.10 per share, and on 25 February 20X6 a major flood destroyed a warehouse that is not expected to be insured, with a loss of $500,000. Both events occurred before the financial statements were authorised. Which is the correct treatment in the 20X5 financial statements?

Both items are non-adjusting events, so neither changes the recognised figures. The $400,000 dividend was proposed after year end, so no liability existed. The flood occurred after year end and is a new condition. Both are disclosed in the notes if material.

  1. AAccrue the $400,000 dividend and adjust profit for the $500,000 loss
  2. BAccrue the dividend and disclose the flood loss
  3. CDisclose both the dividend and the flood loss, with no adjustment to the figuresCorrect
  4. DDisclose the dividend only, and adjust profit for the flood loss

Explanation

The dividend of 4,000,000 x $0.10 = $400,000 was proposed after the reporting date, so it is a non-adjusting item and no liability arises. The flood happened after the reporting date and does not provide evidence of conditions existing at that date, so it is non-adjusting and, being material, is disclosed. Neither changes the recognised amounts.

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