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In: Accounting

ABC Company built a new factory building during 20X5 at a cost of $ 20 million....

ABC Company built a new factory building during 20X5 at a cost of $ 20 million. As of December 31, 20X5, the net book value of the building was $ 19 million. After the end of the year, on March 15, 20X6, the building caught fire and the claim against the insurance company was in vain because the cause of the fire was the negligence of the building caretaker. If the financial statement approval date for the year ending December 31, 20X5, is March 31, 20x6, the company must....
A. Remove the net book value of the residual value because the insurance claim will not provide any reimbursement.
B. Make a provision equal to half the net book value of the building.
C. Make a provision of three quarters of the net book value of a building based on the precautionary principle
D. Disclose this event in the notes to the Financial Statements.

Solutions

Expert Solution

Correct Answer is Option D. Disclose this event in the notes to the Financial Statements.

As per IAS 10 Events after the Reporting Period (Balance Sheet Date)

Events after the end of the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue. There are two types of events: (a) those that provide evidence of conditions that existed at the end of the reporting period (adjusting events after the end of the reporting period), and (b) those that are indicative of conditions that arose after the end of the reporting period (non-adjusting events after the end of the reporting period).

In Present case Reporting Period 1st January 20X5 to 31st December 20X6.

Fire is Occured after Reporting Period i.e. 31st December 20X6 .

Therefore there is no condition exist at Reporting Period regarding Event. So, IT IS NON ADJUSTING EVENT as per IAS 10

An entity shall disclose the following for each category of non-adjusting event after the end of the reporting period: (a) the nature of the event, and (b) an estimate of its financial effect, or a statement that such an estimate cannot be made.

So, Accordingly we will disclosed details in Notes to Accounts and its Impact.

ekkarill92 answered 2 years ago
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