Question

Question

DHL Company prepares financial statements to 31/12 each year. The following events occurred after 31/12/2017 but before date that authorized financial statements for issue.

Classify each of the following events as either an adjusting or non-adjusting event and explain how each event should be dealt with in the financial statements.

1. Make merger with competitor
2. Loss a case that had 3 years in the curt
3. Gain a case that had 3 years in the curt
4. the company made major investment in equipments
5. the company made takover bid for other company
6. A customer how owed an amount of money to the company on 31/12/2017 was declared bankrupt.
7. the company announced a major restructuring plan.

Answer 1

a. Make merger with competitor

Answer: Merger with competitor is a non-adjusting event. Non-adjusting events are those that are indicative of conditions that arose after the end of the reporting period, thus, as the merger procedure started after reporting date and conditions arose after the end of the reporting period, it is a non-adjusting event.

After the end of the reporting period that would generally result in disclosure; the disclosures will reflect information that becomes known after the end of the reporting period but before the financial statements are authorised for issue.

b. Loss a case that had 3 years in the court

Answer: Loss a case against the entity that had 3 years in court after the reporting date is an adjusting event as it provides additional evidence in respect of events that occurred before the end of reporting period and provide evidence of the existence and amount of liability at the reporting date. A liability in respect of the case may be recorded in the financial statements if not recognized initially or the amount of liability may be adjusted in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

c. Gain a case that had 3 years in the court

Answer: Gain a case that had 3 years in the court after the reporting period is an adjusting event as it provides additional evidence in respect of events that occurred before the end of reporting period and provide evidence of the existence and amount of liability at the reporting date. After the reporting date, it became certain that the company have won the case, any liability already recognised in the financial statement should be written off, or any amount receivable, if any, should be recognised in the financial statement after ensuring certainty of receiving the amount.

d. The company made major investment in equipments

Answer: Major investment in equipment is a non-adjusting event as it is an event that is indicative of conditions that arose after the end of the reporting period. Thus, proper disclosure that major investment in equipments had been made my company should be made in the financial statement.

e. The company made takeover bid for other company

Answer: Company made a takeover bid for other company after the reporting date is a non-adjusting event as these are events that are indicative of conditions that arose after the end of the reporting period. Thus, only disclosure is required in the financial statement, no adjustment is required to be made.

f. A customer how owed an amount of money to the company on 31/12/2017 was declared bankrupt.

Answer: Declaration of bankruptcy by a long outstanding receivable after the reporting date may provide evidence that the receivable was impaired at the reporting date. Impairment may be recognized in the financial statements by reducing the amount of receivable to its recoverable amount, if any.

g. The company announced a major restructuring plan.

Answer: The Company announced a major restructuring plan after the reporting date is a non-adjusting event as these are events that are indicative of conditions that arose after the end of the reporting period. Thus, only disclosure is required in the financial statement, no adjustment is required to be made.