Question 4 (a) The objective of IAS 10, Events after reporting period, is to prescribe the treatment of events that occur after an entity s reporting period has ended. Required; Define the period t
(a) The objective of IAS 10, Events after reporting period, is to prescribe the treatment of events that occur after an entity‘s reporting period has ended.
Define the period to which IAS 10 relates and distinguish between adjusting and non-adjusting events.
(b) DW SUPPLIES PTE LTD CURRENT YEAR END IS 31 DECEMBER 2010.Its financial statements were authorised for issue by its directors on 5 February 2011 and the Annual general meeting(AGM) will be held on 7 APRIL 2011.The following events occurred since its year end are being reviewed:
(i)On 21 January 2011, a fire broke out in its warehouse and completely destroyed the warehouse and the inventory it contained. The carrying amounts of the warehouse and the inventory it contained. The carrying amounts of the warehouse and the inventory were $6 million and $2 million respectively. The company is expected to be able to recover a maximum of $4 million from its insurers. DW’s trading operations have been severely affected since the fire and its expects significant trading losses for some time to come.
(ii) Goodprice pte ltd, a major customer of DW was declared bankrupt on 27 January 2011.Outstanding accounts receivable from Goodprice was $800,000 and is material to DW. No provision was made in DW’s account and it is also very unlikely that DW will recover any amount from Goodprice.
(iii) On 5 March 2011 the government announced tax changes which have the effect of increasing DW’s deferred tax liability by $153,000 as at 31 DECEMBER 2010.
Explain the required treatment of the items (i) to (iii) by DW in its financial statement for the year ended 31 December 2010.
(c)IAS 1, Presentation of financial statements, requires management to make an assessment of an entity’s ability to continue as a going concern. Why is the going concern assumption so important when considering events after the statement of financial position date?