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

Omega Co's draft profit for the year ended 31 December 20X5 is $400,000. Before authorisation, the following events occurred: (1) on 15 January 20X6 a receivable of $30,000, outstanding at the year end, was found to be irrecoverable due to the customer's bankruptcy; (2) on 1 February 20X6 a flood damaged inventory worth $20,000, which was in good condition at the year end. What is the correct profit for the year after applying IAS 10?

Profit is $370,000. The $30,000 irrecoverable receivable is an adjusting event, reducing profit from $400,000. The flood happened after the year end to inventory that was in good condition, so it is only disclosed and does not change profit.

  1. A$370,000Correct
  2. B$350,000
  3. C$400,000
  4. D$380,000

Explanation

The bankruptcy confirms a condition at the year end, so it is adjusting: 400,000 - 30,000 = 370,000. The flood is non-adjusting and is only disclosed. Deducting both would give $350,000, which is the key distractor.

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