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Preparing Basic Financial StatementsEvents after the reporting periodIAS 10Receivables

ACCA · Question 07 · Preparing Basic Financial Statements

Section A

Apex Consulting's financial year ended on 31 December 20X5. On 15 February 20X6, before the financial statements were authorized for issue, a major client went into liquidation. The client owed Apex $40,000 as of 31 December 20X5. The liquidator confirmed that unsecured creditors will receive nothing.

How should this event be treated in the financial statements for the year ended 31 December 20X5?

Answer options:

A.

Disclose the event in the notes to the financial statements only.

B.

Adjust the financial statements by writing off the $40,000 receivable.

C.

Ignore the event as it occurred after the reporting period.

D.

Create a provision for $40,000 in the 20X6 financial statements.

How to approach this question

Determine if the event provides evidence of conditions that existed at the end of the reporting period (adjusting) or arose after (non-adjusting). A customer going bankrupt usually indicates the debt was bad at year-end.

Full Answer

B.Adjust the financial statements by writing off the $40,000 receivable.✓ Correct
Under IAS 10 Events after the Reporting Period, the bankruptcy of a customer that occurs after the reporting period usually confirms that a loss existed at the end of the reporting period on a trade receivable. It is an adjusting event, so the receivable must be written off in the 20X5 financial statements.

Common mistakes

Treating it as a non-adjusting event and only disclosing it.
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