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ACCA Applied Skills · Financial Reporting · Provisions and events after the reporting period

Vantage Co has a reporting date of 31 December 20X5 and its financial statements were authorised for issue on 20 March 20X6. On 10 February 20X6 a major customer, Orlen Ltd, was declared insolvent. Orlen owed Vantage $80,000 at 31 December 20X5, and the balance was already outstanding at that date with doubts about recoverability arising from Orlen's deteriorating position during 20X5. How should Vantage treat this event?

Vantage should adjust the financial statements and write off the receivable. A customer's insolvency after the reporting date confirms a condition that already existed at the reporting date, namely that the debt was not recoverable, so IAS 10 classifies it as an adjusting event.

  1. AAdjust the financial statements to write off the receivableCorrect
  2. BDisclose it as a non-adjusting event only
  3. CIgnore it because it occurred in the following period
  4. DRecognise a provision for a contingent liability

Explanation

Insolvency of a customer after the reporting period provides evidence of conditions existing at the reporting date (the receivable was already impaired). It is therefore an adjusting event under IAS 10, and the receivable is written off. Treating it as non-adjusting would leave assets overstated.

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