THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA Thilanka Warnakulasooriya B.Com Special (Col), ACA, MBA Fin ( Col) POSTGRADUATE DIPLOMA IN BUSINESS AND FINANCE /2016 Principles of Financial and Cost Accounting

LKAS 10 Events after the Reporting period

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.

Authorization Date The authorization date is the date when the financial statements could be considered legally authorized for issuance. i.e The preparation of the financial statements of ABC Com Ltd.for the accounting period ended March 31, 2014, was completed by the management on June 15, The draft financial statements were considered at the meeting of the board of directors held on June 20, 2014, on which date the board approved them and authorized them for issuance. The annual general meeting (AGM) was held on July 10, 2014, after allowing for printing and the requisite notice period mandated by the corporate statute. At the AGM the shareholders approved the financial statements. The approved financial statements were filed by the corporation with the Company Register on July 20, Required Given these facts, what is the “authorization date” in terms of LKAS 10

Types of events Two types of events after the end of the reporting period ◦ adjusting events ― those that provide evidence of conditions that existed at the end of the reporting period ◦ non-adjusting events ― those that are indicative of conditions that arose after the end of the reporting period

Adjusting events—adjust the amounts recognised (and update disclosures made) in its financial statements Non-adjusting events—do not adjust the amounts recognised in its financial statements. However, disclose:  the nature of the event, and  an estimate of its financial effect, or a statement that estimate cannot be made

Adjusting Events - Examples (a )Bankruptcy of a customer (adjust trade receivable) (b)Sale of inventories may give evidence about their net realisable value at the reporting date (d)Discovery of fraud or errors that show that the financial statements were incorrect.

Example SS Trading Pvt ltd carries its inventory at the lower of cost and net realizable value. At March 31, 2014, the cost of inventory, determined under the first-in, first-out (FIFO) method, as reported in its financial statements for the year then ended, was 20 million. Due to severe recession and other negative economic trends in the market, the inventory could not be sold during the entire month of April On May 15, 2014, SS Trading entered into an agreement to sell the entire inventory to a competitor for 15 million. Required Presuming the financial statements were authorized for issuance on 20, May 2014, should SS Trading Pvt ltd recognize a write-down of $5 million in the financial statements for the year ended March 31, 2014.

Examples of non-adjusting events include: Declaration of an equity dividend Decline in the market value of an investment after the reporting period Entering into major purchase commitments in the form of issuing guarantees after the reporting period

Exmaple. Ranwan Plc acquired some non-current investments during the year ended 31 March The investments had maintained their value during the year 31 March but shortly after the end of the financial year, market conditions changed and there was a significant decline in the value of the investments. The investments had not recovered their value by the date on which the financial statements were authorised for issue. Requirement State with reasons how this item should be dealt with in the financial statements of Mountain plc for the year ended 31 March 2014

Dividends If declared after the end of the reporting period they do not meet definition of a liability (therefore - entity has an obligation only if declaration date is before the end of the reporting period) Should be disclosed in notes to financial statements