Question 1

Which of the following material after-reporting-date events is not considered an adjusting event?
A) determination after the reporting date of the cost of assets purchased before the reporting date
B) receipt of information after reporting date indicating that an asset was impaired at reporting date
C) determination after the reporting date the amount of bonus payment payable to senior executives
D) destruction of assets due to flood after the reporting date

Accepted Answer

Adjusting events are those that provide evidence of conditions that existed at the balance sheet date. The destruction of assets due to a flood after the reporting date does not provide evidence of conditions that existed at the balance sheet date and is therefore not considered an adjusting event.

Question 2

Which of the following material after reporting date events is considered an adjusting event?
A) settlement after reporting date of a court case that confirms that the entity has a present obligation on reporting date
B) an announcement of a plan to discontinue a business operation
C) decline in market value of investments between reporting date and the date when the financial report is authorised for issue
D) settlement after reporting date of a court case that confirms that the entity has a present obligation on reporting date, and decline in market value of investments between reporting date and the date when the financial report is authorised for issue

Accepted Answer

An event that confirms an obligation as of reporting date is an adjusting event, and the settlement after reporting date of a court case that confirms an entity's present obligation meets that criterion. B is a non-adjusting event because it does not relate to conditions as of reporting date. C is also a non-adjusting event because market value changes after reporting date do not relate to conditions that existed on reporting date. D includes an adjusting event (Settlement after reporting date of a court case that confirms that the entity has a present obligation on reporting date) and a non-adjusting event (decline in market value of investments between reporting date and the date when the financial report is authorized for issue), the presence of non-adjusting event precludes the classification of the combined event as adjusting.

Question 3

Which of the following material after-reporting-date events is not considered a non-adjusting event?
A) a major acquisition of capital assets after the reporting date
B) destruction of inventory by vandals after the reporting date
C) changes in tax rates or tax laws enacted or announced after the reporting date
D) destruction of inventory on consignment by vandals before the reporting date

Accepted Answer

The destruction of inventory on consignment by vandals before the reporting date is considered a prior period adjustment and is therefore adjusted in the financial statements of an earlier period, rather than the current period. All other options are non-adjusting events that do not require adjustments to the financial statements after the reporting date.

Question 4

Management of Utopia Ltd has become aware after reporting date that a major customer is insolvent.The customer apparently went into receivership before Utopia's reporting date and owes Utopia a material amount for inventory purchased during the period.According to AASB 110,how should this event be treated in Utopia's financial statements?
A) The account receivable should be written off.
B) The event should be disclosed in the notes to the financial statements, including information about the financial effect of the customer's insolvency.
C) No reporting is required.
D) The directors are required to disclose the event in the Directors' Declaration.

Accepted Answer

The answer of Management of Utopia Ltd has become aware...

Question 5

Subsequent to the reporting date but before the authorisation date of the financial reports,the dividend to be paid by Hannibal Ltd has been determined.How should this decision be recorded in the financial statements according to AASB 110?
A) The event should be disclosed in a note to the financial statements.
B) The event should be fully reflected in the financial statements.
C) No reporting is required.
D) The shareholders should be informed by separate letter.

Accepted Answer

The answer of Subsequent to the reporting date but before...

Question 6

The following are material events that occurred for Yorba Linda Ltd between the reporting date and the date when the financial report is authorised for issue. 
$\begin{array}{|l|l|}
\hline \text { I}& \text { Bankruptcy of a customer that occurs after the reporting date } \
\hline \text { II } & \begin{array}{l}
\text { Determination after the reporting date of the costs assets purchased before the } \
\text { reporting date }
\end{array} \
\hline \text { III} & \begin{array}{l}
\text { Decline in market value of investments after the reporting date of investments } \
\text { purchased before the reporting date }
\end{array} \
\hline \mathrm{IV} & \text { Dividends declared after the reporting date } \
\hline \mathrm{V} & \text { A lawsuit filed by a customer after the reporting date } \
\hline \text { VI }& \text { Discovery of fraud that shows that the financial report is incorrect }\
\hline
\end{array}$
Which of the following options identify all the adjusting events for Yorba Linda Ltd,in accordance with AASB 110 Events After the Reporting Period?
A) I, II and III
B) II, III and IV
C) I, II and VI
D) III, IV and V

Accepted Answer

Adjusting events are those that provide evidence of conditions that existed at the end of the reporting period. In this case, the determination of the costs of assets purchased before the reporting date (II) and the discovery of fraud that shows the financial report is incorrect (VI) are clear examples of adjusting events because they provide additional evidence about conditions that existed at the reporting date. The bankruptcy of a customer (I) can also be considered an adjusting event if the bankruptcy provides evidence about the customer's ability to pay that existed at the reporting date.

Question 7

Birong Ltd.issued a $200 million preference share issue after reporting date.What is the classification of this subsequent event and what is the accounting treatment prescribed in AASB 110?
A) adjusting event; no disclosure necessary
B) adjusting event; with appropriate disclosure
C) non-adjusting event; no disclosure necessary
D) non-adjusting event; with appropriate disclosure

Accepted Answer

This is a non-adjusting event because it occurred after the reporting date, and does not affect the financial statements as of that date. However, it requires disclosure in the notes to the financial statements to provide users with information about the event and its potential impact on the company's financial position. Therefore, the appropriate treatment is to disclose the subsequent event in the notes to the financial statements.

Question 8

Fruitcorp Ltd has been negotiating a merger with a company that is currently its major supplier.Subsequent to reporting date the merger agreement is finalised.The merger materially affects the size and structure of the new entity and should bring substantial economic benefits to all shareholders.How should this event be reported according to AASB 110?
A) The size and significance of this event is such that it should be fully reflected in the financial accounts. New group accounts should be prepared to reflect the actual economic entity that exists at the time of completion of the financial reports.
B) No disclosure is required.
C) A description of the event, the fact that it occurred after reporting date and its financial effect on the company should be disclosed by way of a note to the accounts.
D) Disclosure of the event in the Directors' Declaration is required.

Accepted Answer

According to AASB 110, events after the reporting period that provide further evidence of conditions that existed at the end of the reporting period (adjusting events) should be reflected in the financial statements. However, for non-adjusting events, which are significant events that occur after the reporting period but are indicative of conditions that arose after the reporting period, the standard requires disclosure in the notes to the financial statements. This includes a description of the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made. The merger, being finalized after the reporting date and materially affecting the size and structure of the entity, is a significant non-adjusting event, thus requiring disclosure in the notes rather than adjustment to the financial statements themselves.

Question 9

If it becomes apparent to an entity that new events or conditions have resulted that indicate that the entity is no longer a going concern,the entity must:
A) treat this as a non-adjusting event and discloses the reason for the breach of the going concern assumption.
B) treat this as an adjusting event and adjust the affected accounts in the financial report.
C) prepare its financial report on a going concern basis and ask the auditor to indicate in the opinion the breach of the going concern basis.
D) prepare the financial reports adopting a fundamental change in the basis of accounting, say use of liquidation values instead of modified historical cost basis.

Accepted Answer

If an entity is no longer a going concern, it must prepare its financial reports using a basis other than the going concern basis, such as liquidation values.

Question 10

Gowanland Co Ltd is being sued over damage to farmland as a result of an accident in which poisonous chemicals were mixed with fertiliser.At reporting date there was no information about the court decision and a contingent liability had been disclosed.Subsequent to the reporting date,the court handed down its decision and upheld a substantial claim for damages.According to AASB 110 how should this event be treated in the financial statements?
A) The contingent liability note should be extended to provide additional information based on the after-reporting-date event.
B) The contingent liability note should remain as it is because it reflects the situation existing at reporting date.
C) The contingent liability can now be measured reliably and is no longer contingent, so it should be recognised in the financial statements as a provision.
D) The treatment would depend on whether or not the entity had received advice from solicitors regarding the likely success of an appeal.

Accepted Answer

According to AASB 110, a provision should be recognised when a present obligation arises from past events and settlement is expected to result in an outflow of resources embodying economic benefits that can be reliable measured. As the court has already handed down its decision and upheld a substantial claim for damages, the contingent liability can no longer be considered as a contingent and should be recognised in the financial statements as a provision.

Question 11

Requirements other than those in AASB 110 regarding after-reporting-date events include:
A) The AASB Framework requirement that the financial statements fully reflect all financial effects either through note disclosure or recognition in the financial statements of any events that occur up to the date of completion.
B) The Corporations Law requirement that a company's directors must give details in their report of any matter or circumstance that has arisen since the end of the year that has significantly affected, or may significantly affect, the entity's operations or the result of those operations or state of affairs in future financial years.
C) The Corporations Law regulations regarding the conduct of an audit that requires auditors to qualify any set of financial statements that do not fully incorporate either in note disclosure or full recognition in the financial statements all events up to the signing of the audit report.
D) AASB Framework requires that the financial statements fully reflect all financial effects either through note disclosure or recognition in the financial statements of any events that occur up to the date of completion and The Corporations Law requirement that a company's directors must give details in their report of any matter or circumstance that has arisen since the end of the year that has significantly affected, or may significantly affect, the entity's operations or the result of those operations or state of affairs in future financial years.

Accepted Answer

The best choice is B as it directly states the requirement under Corporations Law for directors to disclose any significant events or circumstances that have occurred after the end of the financial year. A and D are partially correct as they mention the AASB Framework requirement to fully reflect financial effects up to the date of completion, but they do not specifically address after-reporting-date events. Choice C is incorrect as it relates to the conduct of an audit rather than the reporting of after-reporting-date events.

Question 12

Harrier Ltd has borrowed substantially using foreign currency loans.An unexpected major downturn in the Australian economy after reporting date has substantially weakened the Australian dollar,increasing the size of the debt materially.According to AASB 110,how should this event be reported in the financial statements?
A) The foreign currency debt should be restated at the new exchange rates and the loss recognised.
B) No reporting is required.
C) Harrier Ltd's bank and/or debenture trustees should be notified of the potential that the company may break its debt covenant.
D) A note disclosure of the event should be made.

Accepted Answer

As per AASB 110, events occurring after the reporting period but before the financial statements are authorized for issue should be disclosed in the notes to the financial statements. Therefore, in this case, Harrier Ltd should disclose the event of the unexpected major downturn in the Australian economy and the impact it has had on the Australian dollar and its foreign currency loans in the notes to the financial statements.

Question 13

Karingai Co Ltd has been experiencing cash flow difficulties and sought a long-term loan from a merchant bank to enable it to restructure its financing from short-term to long-term debt.The loan has been approved by the bank after reporting date and the funds are expected to be received before the time of completion of the accounts.How should this event be reported according to AASB 110?
A) If the loan is material and the effect on the future financial performance of the entity is significant, AASB 110 requires the directors to disclose the event in the Director's Report and incorporate it into the financial statements.
B) The directors are required to disclose the event in the Directors' Declaration.
C) No note disclosure is required in this case.
D) The even should be disclosed in a note, the fact that it occurred after reporting date and its financial effect on the company should be provided.

Accepted Answer

AASB 110 requires that events that occur after the reporting date, but before issuance of the financial statements, should be disclosed in the notes to the financial statements, if they are material or if disclosure is necessary to prevent the financial statements from being misleading. In this case, as the loan is material and will have a significant effect on the future financial performance of the entity, it should be disclosed in a note, stating the fact that it occurred after reporting date and providing its financial effect on the company.

Question 14

Which of the following material after-reporting-date events is a non-adjusting event?
A) major disposal of assets before the reporting date
B) expropriation of assets by government before the reporting date
C) issue of preference shares shortly after the reporting date
D) settlement before authorisation date of the financial report of a lawsuit filed by a customer three years ago

Accepted Answer

Non-adjusting events are those that provide evidence of conditions that arose after the reporting period. The issue of preference shares shortly after the reporting date is an example of a non-adjusting event because it reflects the company's financial decisions and conditions that occurred after the balance sheet date.

Question 15

Which of the following material after-reporting-date events is not considered a non-adjusting event?
A) a major business combination after the reporting date
B) destruction of a major production plant by fire after reporting date
C) changes in tax rates or tax laws enacted or announced after the reporting date
D) bonus payments determined after the reporting date

Accepted Answer

Bonus payments determined after the reporting date are considered an adjusting event as they relate to the reporting period and should be included in the financial statements. The other options are non-adjusting events as they occur after the reporting period and are not reflected in the financial statements.

Question 16

If an adjusting event that occurs after reporting date is considered to be immaterial AASB 110 requires that the entity:
A) must disclose the nature of the event and a statement that an estimate of the financial effects cannot be made.
B) must recognise the event at balance date.
C) need not recognise nor disclose the event.
D) must recognise the event at balance date and need not recognise nor disclose the event.

Accepted Answer

AASB 110 requires adjusting events that occur before the reporting date to be reflected in the financial statements, but it does not require adjusting events that occur after the reporting date to be recognised or disclosed unless they are material. If the event is immaterial, it need not be recognised nor disclosed.

Question 17

Cavalier Co Ltd is being sued for negligence in manufacturing a piece of equipment that has allegedly resulted in injury to an employee of the claimant business.The accident occurred after reporting date,but Cavalier has settled quickly so the outcome is now known before the authorisation date of the financial statements.The settlement is for a material amount.How should this transaction be recorded in the financial statements according to AASB 110?
A) The event should be disclosed in a note to the financial statements.
B) The event should be fully reflected in the financial statements as the outcome is complete and known before the time of completion of the reports.
C) No reporting is required.
D) The event should be disclosed in a note to the financial statements and fully reflected in the financial statements as the outcome is complete and known before the time of completion of the reports.

Accepted Answer

The answer of Cavalier Co Ltd is being sued for...

Question 18

Yandalup Ltd has a series of outback cattle stations.Subsequent to reporting date it is discovered that flooding before reporting date has destroyed several farm buildings,equipment and some stock.The loss is material in size.How should this event be reported according to AASB 110?
A) No disclosure is required.
B) The event's financial effect should be recognised in the financial statements for the period.
C) The event's effect on the entity should be included in note disclosure.
D) Disclosure of the event in the Directors' Declaration is required.

Accepted Answer

The event is an adjusting event according to AASB 110 because it provides evidence of conditions that existed at the balance sheet date (the flooding occurred before the reporting date and had a material impact). Therefore, its financial effects should be recognised in the financial statements for the period.

Question 19

The following are material events that occurred for Virgil Ltd between the reporting date and the date when the financial report is authorised for issue. 
$\begin{array}{|l|l|}
\hline \text { I}& \text { Bankruptcy of a customer that occurs after the reporting date } \
\hline \text { II } & \begin{array}{l}
\text { Determination after the reporting date of the costs assets purchased before the } \
\text { reporting date }
\end{array} \
\hline \text { III} & \begin{array}{l}
\text { Decline in market value of investments after the reporting date of investments } \
\text { purchased before the reporting date }
\end{array} \
\hline \mathrm{IV} & \text { Dividends declared after the reporting date } \
\hline \mathrm{V} & \text { A lawsuit filed by a customer after the reporting date } \
\hline \text { VI }& \text { Discovery of fraud that shows that the financial report is incorrect }\
\hline
\end{array}$
Which of the following options identify all the non-adjusting events for Virgil Ltd,in accordance with AASB 110 Events After the Reporting Period?
A) I, II and III
B) II, III and IV
C) I, II and VI
D) III, IV and V

Accepted Answer

Non-adjusting events are those that provide evidence of conditions that arose after the reporting period. In this case, the decline in market value of investments (III), dividends declared (IV), and a lawsuit filed after the reporting date (V) are non-adjusting events as they do not relate to conditions existing at the reporting date.

Question 20

The treatment for breach of going concern assumption as suggested by AASB 110 was not acceptable in the old AASB 1002 for reasons that include:
A) The event is so significant in its effect on the economic decision making of general purpose financial statement users that it is vital that the financial statements be restated in the light of that information.
B) The ethical dilemma for accountants and accounting regulators is that by requiring more disclosure from an entity that is already in financial difficulty, the accountants may actually hasten the demise of a business.
C) It is not necessary to require the management of an entity to take action regarding its going concern status since it is the responsibility of the auditors to establish that going concern conditions exist.
D) It is not appropriate to adjust the assets and liabilities recognised in the financial statements because under The Corporations Law and SAC 2 the financial statements must provide operating results for the reporting and the financial position as at the end of the reporting.

Accepted Answer

The answer of The treatment for breach of going concern...

Quiz 23: Events Occurring After the End of the Reporting Period

Which of the following material after-reporting-date events is not considered an adjusting event?

Which of the following material after reporting date events is considered an adjusting event?

Which of the following material after-reporting-date events is not considered a non-adjusting event?

Subsequent to the reporting date but before the authorisation date of the financial reports,the dividend to be paid by Hannibal Ltd has been determined.How should this decision be recorded in the financial statements according to AASB 110?

Birong Ltd.issued a $200 million preference share issue after reporting date.What is the classification of this subsequent event and what is the accounting treatment prescribed in AASB 110?

If it becomes apparent to an entity that new events or conditions have resulted that indicate that the entity is no longer a going concern,the entity must:

Requirements other than those in AASB 110 regarding after-reporting-date events include:

Which of the following material after-reporting-date events is a non-adjusting event?

Which of the following material after-reporting-date events is not considered a non-adjusting event?

If an adjusting event that occurs after reporting date is considered to be immaterial AASB 110 requires that the entity:

Yandalup Ltd has a series of outback cattle stations.Subsequent to reporting date it is discovered that flooding before reporting date has destroyed several farm buildings,equipment and some stock.The loss is material in size.How should this event be reported according to AASB 110?

The treatment for breach of going concern assumption as suggested by AASB 110 was not acceptable in the old AASB 1002 for reasons that include: