Ind AS 10: Events after the Reporting Period (with 12 example)

Ind AS 10: Events after the Reporting Period

1.concept:-

The event which we will be known to us up to reporting date that may give effect after reporting date but before approval of the financial statement should be adjusted with that year.

Example

 

suppose you are an accountant of a company, You are said to make annual financial statements. You know that debtor x has lot of money to repay the loan what he took from  your company, So as per the MOA you make a provision of 5%.BOD approved financial statement on 1st june.

• case 1 

But suddenly in 30th march, a huge cyclone came & his factory collapsed. & in 20 may he became insolvent.

• case 2

But suddenly in 1st April, a huge cyclone came & his factory collapsed. & in 20 may he became insolvent.

• case 3

But suddenly in 30th march, a huge cyclone came & his factory collapsed. & in 2nd june  he became insolvent.

• case 4

But suddenly in 1st April, a huge cyclone came & his factory collapsed. & in 2nd june  he became insolvent.

Solution:-

1st Condition;-

If cyclone happened on or before 31st march. then the incident is known up to reporting period. & the condition is if it is known up to reporting period then we can adjust in Bal sheet cause there is a chance that he can go insolvent otherwise we only have to give additional discloser.

2nd condition:-

Now above is giving you the power to adjust the effect in ball sheet if this condition is met Upto date of approval of Board

what is  date of approval of Board?

1. Financial statements                                     31st march 2015

2. BOD approves                                                  1st June      2015

3.sahareholder approved in AGM                 5th june     2015.  

• and     : always BOD approve i.e 1st June 2015

now in question, it is clear that debtor  became insolvent in 20 the may or 2nd june.

• case 1

factory collapse before the reporting period I.e 30th march & insolvent before BOD approve . so in P/L  we can show 100% debtor as bad debt.

• case 2

factory collapse after the reporting period I.e 1st april & insolvent before BOD approve . so in P/L  we can show only 5% debtor as PFBD. BUt can give additional Discloser about his condition

• case 3

factory collapse before the reporting period I.e 30th march & insolvent after BOD approve . so in P/L  we can show only 5% debtor as PFBD. BUt can give additional Discloser about his condition

• case 4

factory collapse after the reporting period I.e 1st April & insolvent after BOD approve . so in P/L  we can show only 5% debtor as PFBD. BUt can give additional Discloser about his condition

 Approval of Financial statements:-

The definition says that the last date of the concerned period is the date of approval of financial statements. Now the question arises: what is meant by approval of financial statements? When can one say that the financial statements are approved? Which body needs to be considered as approving authority? If there is a hierarchy of approvals, at what level, one can assume that the financial statements are approved?

As per the standard,

(I) In case of a company: The financial statements will be treated as approved when board of directors approves the same.

(ii) In the case of any other entity: The financial statements will be treated as approved when the corresponding approving authority approves the same. The standard does not mention specifically what will constitute the approving authority in case of any other entity. But from the word “Corresponding” one can construe that itis the body which is authorised to manage the entity on behalf of all members.

(iii) If shareholders ’ approval is must , then should the approval date be considered as the date on which the shareholders approve it?

What is reporting Period?

 The last day of the financial year i.e 31st March.

example

The financial year of an entity ends on 31 March, 20X2. If the board of directors approves the financial statements on 15th May, 20X2, ‘after the reporting period ’ will be the period between 31 March, 20X2 and 15 May, 20X2 and the events occurring during this period should be considered as ‘events after the reporting period.

IMPORTANT EXAMPLES

1  

• FINANCIAL STATEMENTS     31st march 2015
• BOD approve                          31st august 2015
• shareholder approve               30 Sep        2015

but during this for year 15-16 1 st quarterly return submitted in 1st July. so how it is possible to publish next year quarterly result before publishing  previous year Financial statement?

ANS :- as per IND AS 10 it is allowable.

test your knowledge

1. ABC Ltd., has announced its interim results for Quarter 1, ending 30 June, 20X2 on 5 July, 20X2. However, till that time the AGM for the year 20X1-20X2was not held. The financial statements for 20X1-20X2 were approved by the board of directors on 15 July, 20X2. What will be the ‘after the reporting period ’ as per the definition given in Ind AS 10?

from icai

2. ABC Ltd., is in a legal suit with the GST department. The company gets a court order in its favour on 15 April, 20X2, which resulted into reducing the tax liability as on 31 March, 20X2. The financial statementsfor 20X1-20X2 were approved by the board of directors on 15 May, 20X2. The management has not considered the effect of the transaction as the event is favourable to the company. The company ’s view is thatfavourable events afterthe reporting period should not be considered as it would hamper the realisation concept of accounting. Comment on the company ’s views in the light of Ind AS 10.

3. ABC Ltd., is trading in laptops. On 31 March, 20X2, the company has 50 laptops which were purchased at ` 45,000 each. The company has considered the same price for calculation of closing inventory valuation. On 15 April, 20X2, advanced version of same series of laptops is introduced in the market. Therefore, the price of the current laptops crashes to ` 35,000 each. The financial statements for 20X1-20X2 were approved by the board of directors on 15 May, 20X2. The company does not want to value the stock at ` 35,000 less estimated costs necessary to make the sale as the event of reduction in selling price took place after 31 March, 20X2 and the reduced prices were not applicable as on 31 March, 20X2. Comment on the company ’s views.

4. XY Ltd had taken a large-sized civil construction contract, for a public sector undertaking, valued at Rs. 200 Crores. Execution of the project started during 20X1-X2, and continued in the next financial year also. During the course of execution of the work on May 29, 20X2, the company found while raising the foundation work that it had met a rocky surface and cost of contract would go up by an extra Rs. 50 crore, which would not be recoverable from the Contractee as per the terms of the contract. The Company ’s financial year ended on 31 March, 20X2, and the financial statements were considered and approved by the Board of Directors on 15 June, 20X2. How will you treat the above in the financial statements for the year ended 31 March, 20X2?

5. A Ltd. was required to pay penalty for a breach in the performance of a contract. A Ltd. believed that the penalty was payable at a lower amount than the amount demanded by the other party. A Ltd. created provision for the penalty but also approached the arbitrator with a submission that the case may be dismissed with costs. A Ltd. prepared the financial statements for the year 20X1-X2, which were approved in July 20X2. The arbitrator, in June 20X2, awarded the case in favour of A Ltd. As a result of the award of the arbitrator, the provision earlier made by A Ltd. was required to be reduced. The arbitratoralso decided that cost of the case should be borne by the other party. Now, whether A Ltd. is required to remeasure its provision and what would be the accounting treatment of the cost that will be recoveredby A Ltd., which has already been charged to the Statement of Profit and Loss as an expense for the year 20X1-X2?

6. A company manufacturing and supplying processcontrol equipment is entitled to duty drawback if it exceeds its turnover above a specified limit. To claim duty drawback, the company needs to file application within 15 days of meeting the specified turnover. If application is not filed within stipulated time, the Department has discretionary power of giving duty draw back credit. For the year 20X1-X2, the company has exceeded the specified limit of turnover by the end of the reporting period but the application for duty drawback is filed on April 20, 20X2, which is after the stipulated time of 15 days of meeting the turnover condition. Duty drawback has been credited by the Department on June 28, 20X2 and financial statements have been approved by the Board of Directors of the company on July 26, 20X2. Whether duty drawback credit should be treated as an adjusting event?

7. XYZ Ltd. sells goods to its customer with a promise to give discount of 5% on list price of the goods provided that the payments are received from customer within 15 days. XYZ Ltd. sold goods of Rs. 5 lakhs to ABC Ltd. between 17 March, 20X2 and 31 March, 20x2. ABC Ltd. paid the dues by 15 April, 20X2 with respect to sales made between 17 March, 20X2 and 31 March, 20X2. Financial statements were approved for issue by Board of Directors on 31 May, 20X2.

State whether discount will be adjusted from the sales at the end of the reporting period.

8. Whether the fraud related to 20X1-X2 discovered after the end of the reporting period but before the date of approval of financial statements for 20X3-X4 is an adjusting event?

9. X Ltd. was having investment in form of equity shares in another company as at the end of the reporting period, i.e., 31 March, 20X2. After the end of the reporting period but before the approval of the financial statements it has been found that value of investment was fraudulently inflated by committing a computationerror. Whether such event should be adjusted in the financial statementsfor the year 20X1-X2?

from icai

Answers

1. As per Ind AS 10, even if partial information has already been published, the reporting period will be considered as the period between the end of reporting period and the date of approval of financial statements. In the above case, the financial statements were approved on 15 July, 20X2. Therefore, for the purposes of Ind AS 10, ‘after the reporting period ’ would be the period between 31 March, 20X2 and 15 July, 20X22.

2      As per Ind AS 10, even favourable events need to be considered. What is importantis whether a condition exists as at the end of the reporting period and there is evidence for the same.

3. As per Ind AS 10, the decrease in the net realisable value of the stock after reporting period should normally be considered as an adjusting event.

4. In the instant case, the execution of work started during the F.Y. 20X1-X2 and the rocky surface was there at the end of the reporting period, thoughthe existence of rocky surface is confirmed after the end of the reporting period as a result of which it became evident that the cost may escalate by Rs. 50 Crores. In accordance with the definition of ‘Events after the Reporting Period ’, since the rocky surface was there, the condition was existing at the end of the reporting period, therefore, it is an adjusting event. The cost of the project and profit should be accounted for accordingly.

5. In the instant case, A Ltd. approached the arbitrator before the end of the reporting period, who decided the award after the end of the reporting period but before approval of the financial statements for issue. Accordingly, the conditions were existing at the end of the reportingdate because A Ltd. had approached the arbitrator before the end of the reporting period whose outcome has been confirmed by the awardof the arbitrator. Therefore, it is an adjusting event. Accordingly, the measurement of the provision is required to be adjusted for the event occurring after the reporting period. As far as the recovery of the cost by A Ltd. from the other party is concerned, this right to recover was a contingent asset as at the end of the reporting period. As per para 35 of Ind AS 37, contingent assets are assessed continually to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognised in the financial statements of the period in which the change occurs. If an inflow of economic benefits has become probable, an entity disclosesthe contingent asset.

On the basis of the above, a contingent asset should be recognised in the financial statements of the period in which the realisation of asset and the related income becomes virtually certain. In the instant case, the recovery of cost became certain when the arbitrator decided the award during F.Y. 20X2-X3.

Accordingly, the recovery of cost should be recognised in the financial year 20X2-X3.

6. In the instant case, the condition of exceeding the specified turnover was met at the end of the reporting period and the company was entitled for the duty draw back but the application for the same has been filed after the stipulated time. Therefore, credit of duty drawback is discretionary in the hands of the Department. Accordingly, the duty drawback credit is a contingent asset as at the end of the reporting period, which may be realised if the Department credits the same.

As per para 35 of Ind AS 37, contingent assets are assessed continually to ensure that developments are appropriately reflected in the financial statements. If it has become virtually

certain that an inflow of economic benefits will arise, the asset and the related income are recognised in the financial statementsof the period in which thechange occurs. If an inflow of economic benefits has become probable, an entity discloses the contingent asset.

In accordance with the above, the duty draw back credit which was contingent asset for the F.Y. 20X1-X2 should be recognised as asset and related income should be recognized in the reporting period in which the change occurs. i.e., in the period in which realisation becomes virtually certain, i.e., F.Y. 20X2-X3.

7. As per Ind AS 115, if the consideration promised in a contract includes a variable amount, an entity shall estimate the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer.

In the instant case, the condition that sales have been made exists at the end of the reporting period and the receipt of payment with 15 days time after the end of the reporting period and before the approval of the financial statements confirms that the discount is to be provided on those sales. Therefore, it is an adjusting event. Accordingly, XYZ Ltd. should adjust the sales made to ABC Ltd. with respect to discount of 5% on the list price of the goods.

8. In the instant case, the fraud is discovered after the end of the reporting period of 20X3-X4, which related to F.Y. 20X1-X2. Since the fraud has taken place before the end of the reporting period, the condition was existing which has been confirmed by thedetection of the same after the end of the reporting period but before the approval of financial statements. Therefore, it is an adjusting event.

Moreover, Ind AS 10 in paragraph 9, specifically provides that the discovery of fraud or error after the end of the reporting period, that shows that financial statements are incorrect, is an adjusting event. Such a discovery of fraud should be accounted for in accordance with Ind AS 8, if it meets the definitionof prior period error.

9. Since it has been detected that a fraud has been made by committingan intentional error and as a result of the same financial statements present an incorrect picture, which has been detected after the end of the reporting period but before the approval of the financial statements. The same is an adjusting event. Accordingly, the value of investments in the financial statements should be adjusted for the fraudulent error in computation of value of investments.

About Commerce Now

Hi, Myself CMA Mousam Roy having more than 5 years experience in commerce field,teaching field as well as professional field with working with PSU and big Firm.