LESSON 4:

EVENTS AFTER THE END OF THE REPORTING PERIOD (IAS 10)

At the end of the lesson, the student will be able to:
• understand the concept and know the types of events after the reporting period; and
• describe the recognition of adjusting and non-adjusting events.

IAS 10 Objective:
Prescribes the accounting for, and disclosures of, events after the reporting period, including the date when financial statements were
authorized for issue.

Events after the reporting period

Are those events, favorable and unfavorable, that occur between the end of the reporting period and the date when the financial
statements are authorized for issue.

1) The end of reporting period- end of the accounting period example December 31.

2) The date of authorization of the financial statements is the date when management authorizes the financial statements for issue
regardless of whether such authorization is final or subject to further approval.

December 31 March 20 (example only)

End of reporting period The date of authorization for issue

Two types of events after the reporting period

1. Adjusting events after the reporting period

• provide evidence of conditions that existed at the end of the reporting period.
• it require adjustments of amounts in the financial statements.
• Examples:
◦ The settlement after the reporting period of a court case that confirms that the entity has a present obligation at the end of
reporting period.
◦ The receipt of information after the reporting period indicating that an asset was impaired at the end of reporting period. For
example:
▪ i. The bankruptcy of a customer that occurs after the reporting period may indicate that the carrying amount of a trade
receivable at the end of reporting period is impaired.
▪ ii. The sale of inventories after the reporting period may give evidence to their net realizable value at the end of reporting
period
◦ The determination after the reporting period of the cost of asset purchased, or the proceeds from asset sold, before the end of
reporting period.
◦ The discovery of fraud or errors that indicate that the financial statements are incorrect.
◦ The determination after the reporting date of the amount of profit-sharing or bonus payments, if the entity had a present legal
obligation or constructive obligation to make such payments as a result of events before the end of the reporting period.
2. Non-adjusting events after the reporting period
• indicative of conditions that arose after the reporting period.
• do not require adjustments of amounts in the financial statements, however, disclosed if they are material.
• Examples:
◦ Changes (abnormal) in fair values, foreign exchange rates, interest rates or market prices after the reporting period.
◦ Casualty losses (e.g., fire, storm, or earthquake) occurring after the reporting period but before the financial statements were
authorized for issue.
◦ Litigation arising solely from events occurring after the reporting period.
◦ Major ordinary share transactions and potential ordinary share transactions after the reporting period.
◦ Major business combination after the reporting period.
◦ Announcing a plan to discontinue an operation after the reporting period.
◦ Declaration of dividends after the reporting period
◦ Change in tax rates or tax laws enacted or annouced after the reporting period that have a significant effect on current and
deferred tax assets and liabilities.

EXAMPLES

The financial statements of JJJ for the year ended December 31, 2024 had been authorized for issue on April 13, 2025. Each of the
numbered materials items below were events occuring between December 31 2024 and April 13, 2025. State whether each would be an
adjusting event OR non-adjusting event in the financial statements for the year ended December 31, 2024.

1. At December 31, 2024, the trial balance shows accounts receivable of P2M, of which P400,000 is due from GGG. This amount of
P400,000 includes one account of P180,000, which is already overdue. On January 31, 2025, a receiver was appointed to GGG. The
receiver informed JJJ that the P400,000 would be paid in full by April 30, 2025. -AE- The assignment of a receiver indicates bankruptcy
that requires the recognition of impairment loss in profit or loss and the derecognition of the related receivable on the statement of financial
position.

2. JJJ included in its liabilities an amount of P2.5M representing a provision in respect of a lawsuit filed by an injured baker in 2024. The
case was first heard in count in January 2025. On March 31, 2025, the court handed down its decision requiring JJJ to pay P1.9M to the
injured employee. -AE- The March 31, 2019 event requires that Julie Company recognizes a liability of P1,900,000 as of December 31,
2018. Thus, the provision of P2,500,000 previously recognized should be adjusted to the amount of P1,900,000.

3. On January 15, 2025, JJJ issued 10-year bonds for P20M with interest of 5% payable semi-annually every July 15 and December 15. -
NAE-This may be disclosed if the transaction is material and non-disclosure could influence the economic decisions of users.

4. JJJ hold equity investments that are held for trading. On December 31, 2024, these equity investments were measured at fair value.
During the first 2 months of 2025, the fair value of the investments continuned to decline and by March 31, 2025, the fair value had fallen
to as much as P200,000. -NAE-This may not be disclosed if not considered significant and will not affect the evaluation of the user.

5. JJJ had 500,000 units of inventory of product Q costing P10 per unit. The total cost is included in the amount of inventory presented in
the statement of financial position at December 31, 2024. Because of newer products offered by its competitors, JJJ had no realistic
alternative except to sell all units of product Q at P10 per unit, providing a 15% commission to its sales staff who consummated the sale.
-NAE- Requiring disclosure of the abnormally large change in asset prices.
 TEST YOURSELF

1. Events after the end of reporting period are favorable or unfavorable events that:
a. Occur between the end of reporting period and the date of the next interim financial statements.
b. Occur between the end of the reporting period and the date of the next annual financial statements.
c. Occur between the end of the reporting period and the date of the next interim or annual financial statements.
d. Occur between the end of the reporting period and the date when the financial statements are authorized for issue.

2. Adjusting events are events that:

a. Are favorable and indicative of conditions that arose after the end of the reporting period.
b. Are unfavorable and indicative of condition that arose after the end of the reporting period.
c. Provide evidence of conditions that existed at the end of the reporting period.
d. Provide of conditions that existed after the date the financial statements were authorized for issue.

3. When after the end of reporting period an event occurs that is indicative of conditions that arose after the end of reporting period, the
entity shall:
a. Adjust the related amount in the financial statements.
b. Disclose the nature and effect of the event and adjust the related amount.
c. Disclose the nature and effect of the event in the financial statements.
d. Disclose the nature but not the effect of the event.

4. The financial statements are authorized for issue:

a. When the approved financial statements are filed with the regulatory body.
b. When the board of directors reviews the financial statements and authorizes them for issue.
c. When the financial statements are made available to shareholders.
d. When the shareholders approve the financial statements at their annual meeting.

5. Which event after the reporting period would require adjustment before issuance of the financial statements?
a. Change in the quoted market price of financial asset held as an investment.
b. Loss of plant as a result of fire.
c. Loss on a lawsuit the outcome of which was deemed uncertain at year-end.
d. Loss on inventory resulting from a storm surge.

6. A trade receivable which owed AAA Company P5,000 at the year-end was declared bankrupt on 5 January 2024. AAA Company has no
prospect of recovering any money from this bankrupt customer. How should AAA Company account this in its December 31, 2024 financial
statements?
a. As adjusting event debiting loss account and crediting accounts receivable.
b. As adjusting event debiting sales account and crediting accounts receivable.
c. As non-adjusting event disclosing the nature and effect of the subsequent event.
d. As non-adjusting event disclosing the nature of the subsequent event.

7. A dividend of P40,000, in relation to the financial year-ending December 31, 2024, was declared in January 5, 2025 and paid on January
12, 2025. How should this event be accounted under IAS 10 as at December 31, 2024?
a. Disclose the nature and effect.
b. Ignore.
c. A dividend liability should be recorded as at December 31, 2024.
d. A dividend liability should be recorded as at December 31, 2024 and disclose the nature and effect.
8. QUESADILLAS Company is completing the preparation of the consolidated financial statements for the year ended December 31, 2024.
The financial statements were endorsed for approval by the Audit Committee on and authorized for issue by the Board of Directors on
March 10, 2025.

• On January 28, 2025, the Parent Company fully paid its US$2.0 million short-term loan contracted on October 8, 2024. The closing rate
at year-end was US$1:P48.
• On February 16, 2025, the Parent Company infused P48.5 million to its subsidiary to fund its budgeted expenses for 2024.

What total amount should be reported as adjusting events on December 31, 2024?

9. RAMEN Company provided the following events that occurred after December 31, 2024:
• Jan. 15, 2025 P3,000,000 of accounts receivable was written off due to the bankruptcy of a major customer.
• Feb. 15, 2025 A shipping vessel of the entity with carrying amount of P5,000,000 was completely lost at sea because of
a hurricane.
• Mar. 10, 2025 A court case involving the entity as the defendant was settled and the entity was obligated to pay the
plaintiff P1,500,000. The entity previously has not recognized a liability for the suit because management deemed it possible that
the entity would lose the case.
• Mar. 15, 2025 A factory with a carrying amount of P4,000,000 was completely razed by forest fire that erupted in the
vicinity.

The management completed the draft of the financial statements for 2023 on February 10, 2025. On March 31, 2025, the board of
directors authorized the financial statements for issue. The entity announced the profit and other selected information on March 22, 2025.
The financial statements were approved by shareholders on April 2, 2025 and filed with the regulatory agency the very next day. What total
amount should be reported as adjusting events on December 31, 2024?

10. SUKIYAKI Company is completing the preparation of the financial statements for the year ended December 31, 2024. The financial
statements are authorized for issue on March 31, 2025.

• On February 1, 2025, a customer went into liquidation having owed the entity P500,000 for the past 5 months. No allowance had been
made against this account in the financial statements.
• On March 15, 2025, a dividend of P3,000,000 was declared and a contractual profit share payment of P1,000,000 was made based on
the profit for the year ended December 31, 2024.
• On March 20, 2025, a manufacturing plant was destroyed by fire resulting in a financial loss of P2,500,000.

What total amount should be recognized in profit or loss for 2024 to reflect adjusting events after the end of reporting period?

11. The audit of TACOS Company for the year ended December 31, 2024 was completed on March 1, 2025. The financial statements were
signed by the managing director on March 15, 2025 and approved by the shareholders on March 31, 2025.

• On January 15, 2025, a customer owing P900,000 to TACOS Company filed for bankruptcy. The financial statements included an
allowance for doubtful accounts pertaining to this customer of P100,000.
• TACOS Company's issued share capital comprised 100,000 ordinary shares with P100 par value. The entity issued additional 25,000
shares on March 1, 2025 at par value.
• Equipment with carrying amount of P525,000 was destroyed by fire on December 15, 2024. TACOS Company had booked a receivable
of P400,000 from the insurance entity on December 31, 2024. After the insurance entity completed an investigation on February 1, 2025, it
was discovered that the fire took place due to negligence of the machine operator. As a result, the insurer's liability was zero on this claim.

What total amount should be reported as "adjusting events" on December 31, 2024?

12. During 2024, UBE Company was sued by a competitor for P5,000,000 for infringement of a patent. Based on the advice of the legal
counsel, the entity accrued the sum of P3,000,000 as a provision on December 31, 2024. Subsequently, on March 15, 2025, the Supreme
Court decided in favor of the party alleging infringement of the patent and ordered the defendant to pay the aggrieved party a sum of
P3,500,000. The financial statements were prepared by management on February 15, 2025 and approved by the board of directors on
March 31, 2025. What amount of adjustment should be made on December 31, 2024 in relation to this event?