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

Kora Co's year end is 30 June 20X6. Inventory item X cost $40,000 and was included at cost in the year-end inventory. In August 20X6, before the financial statements were authorised, it was sold for $31,000 net of selling costs, because of damage that occurred in May 20X6. What adjustment is required to inventory and profit?

Inventory and profit should both be reduced by $9,000. The post-year-end sale at $31,000 net confirms the net realisable value at the reporting date, since the damage happened before it. Inventory must be written down from cost of $40,000 to $31,000.

  1. AReduce inventory and profit by $9,000Correct
  2. BReduce inventory and profit by $40,000
  3. CNo adjustment, disclosure only
  4. DIncrease inventory and profit by $9,000

Explanation

The sale after the reporting date provides evidence of net realisable value at the year end, as the damage occurred before it. Inventory is measured at the lower of cost and NRV: 40,000 − 31,000 = 9,000 write-down, reducing profit. Disclosure only would be wrong because the event is adjusting.

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