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

Orla Co's year end is 31 December 20X5. Accounts were authorised on 28 March 20X6. Which one of the following post-year-end items requires an adjustment to the figures in the financial statements?

The discovery that year-end inventory was overstated by $15,000 requires adjustment, because it reveals an error in the position at the reporting date. The investment price fall, the acquisition and the rights issue arise from conditions after the year end and are only disclosed if material.

  1. AA discovery on 10 February 20X6 that the inventory count at 31 December was overstated by $15,000 due to a counting errorCorrect
  2. BA fall in the market value of investments on 20 February 20X6 due to a market crash
  3. CThe purchase of a competitor on 1 March 20X6
  4. DA $60,000 rights issue announced on 5 March 20X6

Explanation

A counting error discovered after the reporting date shows the year-end inventory figure was wrong, so it is an adjusting event and inventory and profit fall by $15,000. A market-value fall, a business combination and a share issue arise from post-year-end conditions and are non-adjusting (disclosed if material).

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