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

Orion Co has a reporting date of 30 June 20X6. Financial statements were authorised for issue on 20 September 20X6. Which of the following is an adjusting event?

The sale of damaged inventory for $28,000 against a cost of $40,000 is the adjusting event, because the damage existed before the year end and the sale confirms net realisable value. Dividends declared after the period, a bond issue and a new restructuring are non-adjusting.

  1. AA dividend of $50,000 is declared on 15 August 20X6 for the year ended 30 June 20X6
  2. BInventory held at 30 June at cost of $40,000 is sold on 10 August 20X6 for $28,000 owing to damage that occurred in May 20X6Correct
  3. CA bond issue is made on 5 September 20X6
  4. DThe directors announce a restructuring plan on 1 September 20X6 for the first time

Explanation

The sale below cost confirms the inventory net realisable value at the reporting date, since the damage happened in May, so it is adjusting and inventory is written down by $12,000. A dividend declared after the reporting date is not a liability at that date, so it is non-adjusting. The bond issue and a first-time restructuring announcement reflect post-year-end conditions.

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