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

Lambda Co has a year end of 31 March 20X6 and the financial statements were authorised on 30 June 20X6. Which of the following post-year-end events should be adjusted for in the financial statements?

The sale of inventory in April for $32,000 against a cost of $40,000 is an adjusting event, because it confirms net realisable value at the year end. Inventory is written down by $8,000. The other events arose after the year end and are non-adjusting.

  1. AA decision on 10 May 20X6 to close a division, with no prior announcement or plan
  2. BAn issue of new shares on 20 May 20X6
  3. CA major business combination agreed on 5 June 20X6
  4. DInventory with cost $40,000 at the year end, sold on 15 April 20X6 for $32,000Correct

Explanation

The April sale gives evidence of net realisable value at the year end, so inventory is written down by $8,000 (40,000 - 32,000) to the lower of cost and NRV. The share issue, the business combination and the new closure decision are non-adjusting events.

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