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

Zeta Co has a year end of 31 December 20X5 and its financial statements were authorised on 15 March 20X6. Receivables at the year end include $18,000 owed by Pelham Ltd. On 20 February 20X6 Pelham went into liquidation and Zeta expects to receive nothing. No allowance had been made. Profit before this item was $200,000. What is profit after correct treatment?

Profit is $182,000. The liquidation of Pelham after the year end confirms the receivable was irrecoverable at the reporting date, so it is an adjusting event. The $18,000 is written off as an expense, reducing profit from $200,000 to $182,000.

  1. A$200,000
  2. B$182,000Correct
  3. C$218,000
  4. D$190,000

Explanation

The liquidation confirms the debt was impaired at the reporting date, so it is an adjusting event. The full $18,000 is written off as an irrecoverable debt expense: 200,000 − 18,000 = 182,000. Leaving profit at $200,000 would wrongly treat it as non-adjusting.

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