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CMA Intermediate · Corporate Accounting and Auditing · Events after the Reporting Period (Ind AS 10)

Tarun Engineering Ltd. has a year ended 31 March 2027, and its Board approved the accounts on 15 July 2027. A machine was purchased and installed in February 2027 under a contract with a price to be finalised later, and it was recorded at an estimate of Rs 40,00,000. On 20 June 2027, the final price was determined at Rs 43,50,000. Further, on 5 July 2027, a major plant was destroyed by fire, with an estimated loss of Rs 60,00,000. What is the correct accounting for the year ended 31 March 2027?

The machine cost is increased by Rs 3,50,000 because finalising the cost of an asset purchased before year-end is an adjusting event. The Rs 60,00,000 fire loss is non-adjusting, so it is only disclosed with its nature and estimated financial effect.

  1. AIncrease machine cost by Rs 3,50,000 and disclose the fire loss of Rs 60,00,000 without adjustingCorrect
  2. BIncrease machine cost by Rs 3,50,000 and also recognise the fire loss of Rs 60,00,000
  3. CMake no adjustment for the machine but recognise the fire loss of Rs 60,00,000
  4. DMake no adjustment for either, as both occurred after the reporting period

Explanation

Determining after the reporting period the cost of assets purchased before year-end is an adjusting event, so cost rises by 43,50,000 - 40,00,000 = Rs 3,50,000. The destruction of a major plant by fire after the reporting period is a non-adjusting event, so it is disclosed with its nature and an estimate of its financial effect but not recognised.

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