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CMA Intermediate · Corporate Accounting and Auditing · Events after the Reporting Period (Ind AS 10)

Kaveri Foods Ltd prepared its financial statements for the year ended 31 March 2027 on a going concern basis. On 30 April 2027, before the Board approved the statements, the Board decided to cease trading and liquidate the company because it had no realistic alternative. What is the correct treatment under Ind AS 10?

The financial statements must not be prepared on a going concern basis. Management's decision after the reporting period to liquidate or cease trading, because there is no realistic alternative, requires a fundamental change in the basis of accounting, not just disclosure or a limited adjustment of balances.

  1. ADisclose the decision as a non-adjusting event and keep the going concern basis
  2. BAdjust only the carrying amount of inventory to net realisable value and continue the going concern basis
  3. CNot prepare the financial statements on a going concern basisCorrect
  4. DIgnore the decision, as it arose after the reporting period

Explanation

Where management determines after the reporting period that it intends to liquidate the entity or cease trading, or has no realistic alternative, the entity shall not prepare its statements on a going concern basis. This is a fundamental change in the basis of accounting, not a mere disclosure or a limited adjustment. Option A is wrong because disclosure alone is insufficient.

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