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

Orion Co has a year end of 30 September 20X6 and statements authorised on 15 December 20X6. Profit before tax before considering the following was $900,000. (1) On 5 November 20X6 a customer owing $60,000 at the year end went into liquidation, and nothing will be recovered. (2) On 20 November 20X6 a foreign currency fall reduced the value of an overseas loan by $80,000 in the company's favour. (3) On 1 December 20X6 a fire damaged plant costing $120,000, which was fine at the year end. Ignoring tax, what is the correct profit for the year?

Profit is $840,000. Only the customer liquidation is an adjusting event, so the $60,000 receivable is written off. The currency movement and the plant fire happened after the reporting date, so they are non-adjusting and are disclosed rather than included in profit.

  1. A$840,000Correct
  2. B$900,000
  3. C$780,000
  4. D$860,000

Explanation

Only the liquidation is adjusting, as it confirms the receivable was impaired at the year end: $900,000 - $60,000 = $840,000. The currency movement and fire arose after the year end, so they are non-adjusting and only disclosed if material. Including the fire would give $720,000 and the currency gain would give $920,000 or $860,000, all wrong.

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