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[Solved] FIN611 Assignment 1 Spring 2020  

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admin
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25/07/2020 5:22 pm  

FIN611 Advanced Financial Accounting Assignment 1 Spring Solution & Discussion 2020


DUE DATE: JULY 27, 2020       MARKS: 20

 

Question 1: (15 marks)

A) Munir Trading Company has faced the law suit for damages claim for Rs. 1 million by another company. Just before the financial year ending on 30th June, it was believed that the decision of the case is remote and uncertain as well. Therefore the provision for damages claim was not created by the Company. It was the day of 12th august a month and a half after the ending of the financial year when the court give the decision in favour of other party.

Identify that:
A) Under what condition the above event can be considered as adjusting and non- adjusting event? Determine its treatment as per IAS 10 in both cases. SEMESTER SPRING 2020
B) Asghar Trading Company has shown investments of Rs. 5 million in financial statement on 30th June. Due to the downfall in the stock market the value of investments reduced to Rs. 4.9 million by 17th august of the same year before financial statements are authorized for issue. Determine its treatment as per IAS 10.
C) ABC Company Limited involved in trading business. At the end of the year the book value of stock was Rs. 2.5 million whereas net realizable value was Rs. 2.45 million. The stock was sold at Rs. 2.30 million after the balance sheet date but before the 10th of February the time of financial statements are authorized for issue. Identify that at what price the stock was reported in balance sheet on 31st December? Also identify and explain whether it is an adjusting event or non-adjusting event?
D) XYZ limited has declared 10% dividend Rs. 2 million to its shareholder on 27th of December 2018, before the ending of financial year. The dividend not yet paid or recorded till the financial statements are authorized for issue. Determine the treatment of this dividend announcement as per IAS 10.

 

Question:2
Under IAS 10, why disclosure for a non-adjusted event is important? How the disclosure for a non-adjusted event is made by an entity in its financial statements? (5 Marks)

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Danyal Sattar
(@danibhattid)
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28/07/2020 2:36 am  

solution da do plz


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admin
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28/07/2020 10:55 am  

@danibhattid

 

FIN611 Assignment 1 solution idea:

 

Question No.01
IAS 10 (International Accounting Standard 10 Events after the reporting period) contains requirements for when events after the end of the reporting period should be adjusted in the financial statements.

Solution:
A)
1)
Adjusting event:
The event took place during the reporting period and the settlement after the reporting period of the court case confirms that the Munir Trading Company had a present obligation at the end of the reporting period. The entity adjust any previously recognized provision related to this court case in accordance with IAS 37 Provision, Contingent Liabilities and Contingent Assets or recognized a new provision.

Non-adjusting event:
The commencement of the court case due to the events which take place after the reporting date shows it as non-adjusting event. In case of Non-adjusting events, non adjustment is required in financial statement instead IAS 10 requires such events to be disclosed in the notes to accounts if these are considered to be material, otherwise these will be ignored.

B)
The fall in the value of investment after the reporting date is an application example of non-adjusting events.
The decline in fair value does not normally relate to the condition of the investments at the end of reporting period, but reflects circumstances that have arisen subsequently. Similarly the entity does not update the amounts disclosed for the investments as at the end of the reporting period, although it may need to give additional disclosure. An entity shall not recognize such event in the financial statement. It shall only be disclosed.
Or In respect of non-adjusting events, no adjusting is required in financial statements instead IAS 10 requires such events to be disclosed in the notes to accounts if these are considered to be material, otherwise these will be ignored.

C)
The reduction in NVR (Net realizable Value) of stock after the reporting date is an application example of adjusting event. This will be treated as adjusting event as sale of stock after the reporting date reflects that the NRV of stock is less than the cost.
The evidence: the value of stock has fallen down and entity needs to adjust the value of stock included in statement of financial position.

D)
Dividend declared after the reporting date is an application example of non adjusting events.
In respect of non adjusting events, no adjustment is required in financial statements instead IAS 10 requires such events to be disclosed in the notes to accounts if these are considered to be material, otherwise these will be ignored.

Disclosure:
Non-adjusting events should be disclosed if they are of such importance that non-disclosure would affect the ability of users to make proper evaluations and decisions. The required disclosure is (a) the nature of the event and (b) an estimate of its financial effects or a statement that a reasonable estimate of the effect cannot be made. [IAS 10.21]
A company should update is disclosures that relate to conditions that existed at a end f the reporting period to reflect any new information that it receives after the reporting period about those conditions.[IAS 10.19]
Companies must disclose the date when the financial were authorized for issue and who gave that authorization. If the enterprises owners or others have the power to amend the financial statements after issuance, the enterprise must disclose that fact. [IAS 10.17]

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