Question

West Wing Distribution Corporation has a fiscal year end of December 31. On March 15, 2017, the company’s 2016 financial statements were issued. Between December 31, 2016 and March 15, 2017, the following occurred:

1. On January 22, 2017, the company negotiated a major merger with Blakedon Industries to be completed by the middle of 2017.

2. On February 3, 2017, West Wing negotiated a $10 million long-term note (material amount) with the Credit Bank of Pennsylvania.

3. A flood destroyed one of the company’s manufacturing plants causing $600,000 of uninsured damage on February 25, 2017.

Determine the appropriate treatment of each of these events in the 2016 financial statements of West Wing Distribution Corporation.

Answer 1

The accounting for subsequent events under U.S. GAAP and IFRS is substantially similar. For example, under both U.S. GAAP and IFRS, if an event occurs that is indicative of conditions that arose after the end of the reporting period, financial statements generally are not adjusted. In addition, the financial statements would be adjusted under both U.S. GAAP and IFRS to reflect events that occur after the end of the reporting period if the events provide additional evidence about conditions that existed prior to the end of the reporting period.

Accordingly,

1. It is assumed that company had prior knowledge of talks for the merger (as it is lenghty and tediour process) on Dec 31 and they should have mentioned it in their annual report. If they had not than it is to be disclosed in the foot notes, directors report as well as chairman report

2. Assuming it is not known that loan would be issued and it is not a recurring loan, no disclosure or adjustmenr in report shall be required

3. there shall be no adjustment in the books, however mention of it is required in the annual report.