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

Zeta Co's reporting date is 31 December 20X5 and its financial statements were authorised for issue on 15 March 20X6. On 20 February 20X6 a fire destroyed a warehouse that was in good condition at the year end. Which treatment is correct under IAS 10?

The fire is a non-adjusting event because the warehouse was in good condition at the year end. Amounts are not changed, but the nature of the event and an estimate of its financial effect should be disclosed if material.

  1. AAdjust inventory and profit for 20X5 because the loss was discovered before authorisation
  2. BDisclose the nature of the event and an estimate of its financial effect, without adjusting the amountsCorrect
  3. CMake no disclosure because the fire happened after the reporting date
  4. DCreate a provision at 31 December 20X5 for the expected loss

Explanation

The fire arose from conditions that did not exist at the reporting date, so it is a non-adjusting event. IAS 10 requires disclosure of its nature and estimated financial effect if material. Adjusting would wrongly recognise a loss in 20X5.

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