Tutorial 5

IAS 10 Events after the reporting period

Question 1

(a)

Adjusting event is an event after the reporting period that provides further evidence of conditions
that existed at the end of the reporting period, including an event that indicates the going concern
assumption in relation to the whole or part of the enterprise is not appropriate.

An entity is require to adjust the amounts recognized in its financial statements to reflect the
adjusting events after the reporting period.

E.g.:

Evidence of a permanent diminution in property value prior to year end.

Insolvency of a customer with a balance owing at the year end.

Non-adjusting event is an event that is indicative of conditions that arose after the reporting period.

No adjustment is to be made to the amounts recognized in the financial statements in respect of

non-adjusting events after the reporting period.

E.g.:

A major biz combination/disposing of a major subsidiary after the reporting date.

The destruction of a major production plant by a fire after the reporting period.

(b)

If non-adjusting events after the reporting period are material, non-disclosure could influence the
economic decisions of users taken on the basis of the financial statements. Accordingly, an entity
shall disclose the following for each material category on non-adjusting event after the reporting
period:

(a) The nature of the event

(b) An estimate of its financial effect, or a statement that such an estimate cannot be made.

Question 2

(i) Non-adjusting event. It is indicative of conditions that arose after the reporting period.
However, disclosure is required as this event is material.
(ii) Non-adjusting event. It is indicative of conditions that arose after the reporting period.
However, disclosure is required as this event is material.
(iii) Adjusting event. It provides further evidence of conditions that existed at the end of the
reporting period. Zizi should adjust the amounts to RM400,000 in its financial
statements to reflect the adjusting events after the reporting period.
IAS 37 Provisions, contingent liabilities & contingent assets

Question 1

(a) Provision. It fulfill the criteria.

(b) No provision. Future operating losses should not be recognized as provision since they do not
meet the definition of a liability/the recognition tests.

(c) Provision. It fulfill the criteria.

(d) Not provision but recognized as contingent asset.

(e) Provision. It fulfill the criteria.

Question 2

(A)(a)

Provision

A provision is a liability of uncertain timing or amount.

An entity needs to recognize a provision if the following criteria are met:

(a) It has a present obligation (legal/constructive) as a result of past event,

(b) It is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation
(c) A reliable estimate can be made of the amount of the obligation.

Contingent liability

A contingent liability is an uncertain liability that does not meet the 3 criteria for recognising a
provision.

A contingent liability is defined as:-

(a) A possible obligation that arises from past events and whose existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain future events not wholly
within the control of the entity; or

(b) A present obligation that arises from past events but is not recognised because:
 It is not probable that an outflow of resources embodying economic benefits will be
required to settle the obligation; or
 The amount of obligation cannot be measured reliably.

Contingent liability should not be recognized in the financial statements but they should be disclosed
unless the possibility of an outflow of resources embodying economic benefits is remote.
Contingent asset

Contingent asset is a possible asset that arises from past events & whose existence will be confirmed
only by occurrence or non-occurrence of one or more uncertain future events not wholly within the
control of the entity.

Contingent assets are not recognized as assets. They are recognized as asset only when the
realization of the related economic benefits is virtually certain, at which point it is no longer a
contingent asset.

Contingent assets must be disclosed in the notes if they are probable.

(B)

(a) The plan was announced before 31 March 2016

Restructuring is a program that is planned & controlled by management & materially changes. The
company had decided to close one of its overseas operation in Philippines so they held a board
meeting on 13 Nov 2015. They have detailed formal plan that presented to the board and the entity
has raised a valid expectation in those affected that it will carry out the restructuring by starting to
implement that plan/announcing its main features to those affected by it. Restructuring provision is
recognized as it satisfied the recognition criteria that constructive obligation is arises.

(b) The plan was announced after 31 March 2016

Under IAS 37, if the restructuring plan is implemented or announced publicly after the year end,
then the entity has to make a disclosure. The company has the intention to announce &
communicate the detailed plan to the customer, suppliers & staff in July 2016.

Question 3

(a) Future operating losses

Future operating losses should not be recognized as provision since they do not meet the
definition of a liability/the recognition tests. Future operating losses is not a present
obligation as a result of past event and there is no settlement of any obligation that will
result in probable outflow of resources. Also, the future operating losses may not be
estimated reliably.

(b) Onerous contracts

If an entity has an onerous contract, it has to provide for the present obligation under the
contract based on the unavoidable costs. The amount recognized can be the lower of
fulfilling the contract and paying the penalties or compensation for terminating the contract.