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LKAS - 10 Exercise

The document discusses 5 events that occurred after the reporting period of 31st March 2022 for a company named ABC (Pvt) Ltd. It requires the recognition of each event in the financial statements as per LKAS 10 Events after the reporting period standard. The summary provides adjustments required for 3 events as adjusting events and disclosure requirements for 2 non-adjusting events.

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590 views4 pages

LKAS - 10 Exercise

The document discusses 5 events that occurred after the reporting period of 31st March 2022 for a company named ABC (Pvt) Ltd. It requires the recognition of each event in the financial statements as per LKAS 10 Events after the reporting period standard. The summary provides adjustments required for 3 events as adjusting events and disclosure requirements for 2 non-adjusting events.

Uploaded by

Saneej
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Exercise -01 – LKAS-10

ABC (Pvt) Ltd. is in the business of selling computer accessories. The following
transactions/events were occurred after the reporting period, but before the authorization of
financial statements for the year ended 31st March 2022.

1. The board of directors has approved a final dividend of Rs.6/- per share on profit for the year
to ordinary shareholders on 24th April 2022 and there were 100,000 shares in issue.
2. A litigation against the company had been lodged by three (3) former employees in the labour
tribunal two years ago. The decision was declared on 26th April 2022 to make a compensation
worth of Rs. 2.5 million for each employee.
3. Due to the arrival of modern version of laptops, existing laptops were sold with a discount of
50% for Rs.55,000/- per laptop. The cost per laptop was Rs.80,000/-. There were 100 laptops
remaining as at 31st March 2022. All these laptops were sold during the first week of April
2022.
4. On 09th April 2022, there was a fire due to an electrical shock in Avissawella warehouse.
Cost of stock loss was Rs. 2.8 million.
5. A fraud of Rs.75,000/- relating to cash collection of the year was discovered on 5th April 2022.

You are required to:


Explain how each of the above instances would be recognized in the financial statements for the
year ended 31st March 2022 as per LKAS 10-Events after the reporting period.
1. Non-Adjusting Event –
As per LKAS 10 Events after the reporting period standard the ordinary share final dividend
cannot be recognized. Instead, the per share dividend, total dividend, approved date shall be
disclosed mandatorily. Hence a disclosure in the financial statement as a note should be made.
2. Adjusting Event-
The legal case was existed as of the reporting date as a contingent liability. However, the case
was finalized not in favour of the company during the after-reporting period. This removes the
contingency status of the liability. Therefore, a provision of Rs. 2.5 million is required in the
financial statements as per LKAS 10.
3. Adjusting Event –
The inventory held as at the reporting period has been measured at cost. However,
subsequently the inventory has been realized at a value lower than the cost. Therefore, such
loss shall be provided as per LKAS 10.
4. Non-Adjusting Event-
The damage caused by the fire indicates an event occurred after the reporting period.
Therefore, this loss shall not be adjusted in financials ended 31/3/22
5. Adjusting Event –
The cash fraud was already occurred as at the reporting date. It was discovered later by an
event after the reporting period. Therefore, the loss shall be adjusted to the financial
statements as a loss of cash.
Exercise -02 – LKAS-08

XYZ Ltd. has prepared its financial statements for the year ended 31st March 2023 and you
have been appointed as the accountant of the company with effect from 01st April 2023. You
have observed the following instances when reviewing the Financial Statement.

1. The machinery of the company was purchased at cost of Rs.4 million on 01st April 2021 and
useful life of the machinery was 5 years. Useful life time of machinery has been re-assessed on
01st April 2022 and it was revealed that remaining useful life time as at 01st April 2022 is 8
years. This has not been considered in the financial statements for the year ended 31st March
2023.
2. A computer purchased for office use on 01st March 2023 was charged in office maintenance
account. Cost of the computer was Rs.300,000/- and its useful life time is 4 years.

You are required to:


Explain the impact of the above two instances to the financial statements of XYZ Ltd. as per
LKAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors.
1. Annual depreciation amount for the year 2021/2022

= Cost - Scrap Value / Expected Useful Life

= 4,000,000 - 0 / 5

= 800,000

The amount of depreciation for the first year of the machine is Rs. 800,000 Amount of
depreciation for the year 2022/2023

= 3,200,000 - 0 / 8

= 400,000

The effect of the accounting estimate change should be applied for the current year and future
periods. Therefore, amount of depreciation to be reported for the year 2022/2023should be
reduced to Rs.400,000.

3. This is an accounting error;


Therefore it should be adjusted retrospectively. Error shaouls be corrected. The purchase of a
computer is a capital expenditure and should be capitalized as a machine. Then the expenses
charged for the year 31/03/2023 will be reduced by Rs.300,000. But related to the computer,
depreciation should be recorded as expenditure in the month of March 2023.
Accordingly the depreciation for a month amounting to Rs.6,250/- (300,000/4 x ½ = 6,250)
should be provided.

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