What are adjusting and non-adjusting events according to AASB 110?
The provided event states that Remote Islands Ltd wants a long-term loan from a commercial bank as the company is suffering from cash flow difficulties. This loan requires Remote Islands Ltd to restructure their financing from short-term to long-term. In this context, it is required to mention that the reporting date of the company is 30 June 2017 and the date of issue of financial statements is 30 August 20i17. According to the provided situation, the long-term loan approval date is 22 July 2017 and the company is expected to receive the fund before the issue of financial statement that is 30 August 2017. The above situation implies that the arrival of long-term loan amount will create favorable impact on the financial situation of the companies. In this situation, additional information is available about the loan amount. For all these reasons, this will be considered as an adjusting event (legislation.gov.au, 2017).
According to the above discussion, it needs to be mentioned that the approval of loans will have effect on the financial condition of Remote Islands Ltd. The liability position of the company will be affected as there is a financing restructuring process in the company. Previously, the company used to take short-term loans for their business needs, but the company is now taking long-term loans. For this reason, the liability account of the company in financial statements will be affected. Now, it is required for Remote Islands Ltd to add the whole amount of loans in their balance sheet under the head of non-current liabilities. In this regard, it needs to be mentioned that the loan amount will not have any effect on the profitability of the company. However, the profitability of the company may be affected in long-term basis (aasb.gov.au, 2017).
In this situation, Remote Islands Ltd is required to disclose some basic information regarding the long-term loan and the company is required to provide them in the financial statements in the form of Notes. First, Remote Islands Ltd is required to disclose the long-term loan amount along with the name of the commercial bank. Second, Remote Islands Ltd is required to mention the date of approval and the date of receiving the loan amount in the notes. Lastly, Remote Islands Ltd is required to mention the effect of the long-term loans on the liability position of the company (cpaaustralia.com.au, 2017).
According to the provided situation, it can be seen that one of a major customers of Green Products Ltd is insolvent and he went into receivership on 25 May 2017. The provide situation also shows the fact that the customer has bought a material amount of inventory of the company on credit basis in the financial year ended 30 June 2017. From the above discussion, it can be seen that this incident has most of the features present in it to be an adjusting event. First, this is an incident that Green Products Ltd is required to favor as the company can access to all the information required for this incident. Second, the incident takes place with the financial year. At the same time, the amount can be recognized in the financial statements of Green Products Ltd. For the presence of all these reasons, this incident will be considered as an adjusting event (legislation.gov.au, 2017).
Example of adjusting event: Long-term loan approval for Remote Islands Ltd
It needs to be mentioned that the insolvency of that particular customer will have material effects on some of the accounts in financial statements of Green Products Ltd. First, as a result of insolvency, that particular customer will not be able to pay the whole amount of money for credit purchase from Green Products Ltd. As a result of this, the amount of revenue in income statement of the company will be affected. After that, it needs to be mentioned that the inventory account in the balance sheet of Green Products Ltd will also be affected (aasb.gov.au, 2017). Thus, it can be observed that this particular incident will have its effect on overall profitability of the company.
Based on the above discussion, it can be seen that the insolvency of one of the customers of Green Products Ltd is a major adjusting event for the company. For this reason, the company is required to disclose this incident in the financial statement as the form of Notes. In the process of disclosing the incident, Green Products Ltd is required to show the credit amount of purchase in the form of contingent liability. Contingent liability refers to the potential liability that may occur in near future. In case of Green Products Ltd, there is a high probability that Green Products Ltd will not be able to recover the whole amount from the insolvent customer. In addition, the company is required to provide the amount of purchase in Notes (cpaaustralia.com.au, 2017).
From the provided event, it can be observed that there is a decline in market demand for Catering Ltd as one of its competitors have launched catering business by offering better services for lower price. Due to this incident, Catering Ltd have cut costs from different business activities and five employees have lost their jobs in 2 August 2017. It needs to be mentioned that the rival company has launched the new business on 25 July 2017. Thus, it can be observed that the major incident took place after the reporting date (aasb.gov.au, 2017). In addition, it is also a fact that the incident is not directly related with the business operations. However, all the details are available to the company and they are favorable. No necessary adjustments will be made in the financial statements. For all these reasons, this event will be considered as non-adjusting event (legislation.gov.au, 2017).
In this event, it needs to be mentioned that there will not be any change in the financial statement of Catering Ltd due to the non-adjusting nature of the event. It implies that there will not be any change in the amounts in the financial statements of Catering Ltd. For all of these reasons, any account of Catering Ltd in the financial statements is not affected due to this event.
Example of adjusting event: Insolvency of a major customer for Green Products Ltd
However, it is required for Catering Ltd to mention about this incident in the financial statements as the form of Notes. Some specific aspects need to be mentioned in Notes. First, it is required for Catering Ltd to mention the areas where Catering Ltd has cut costs. After that, it is also required for Catering Ltd to mention the specific amounts of cost cutting in the Notes. In this context, it is required for Catering Ltd to mention the adjusted amount in the notes so that the readers of financial statements can recognize the areas (cpaaustralia.com.au, 2017).
According to the provided incident, it can be seen that the management of Seaford Rise Ltd has taken a decision of closing down a division of their business as a result of the decrease in customer demand. The decision was taken in the Board of Director’s meeting on 25 July 2017. As per the provided information on the event, the closing date of the division is 10 August 2017 and the closing down cost is $2 million. Thus, from the provided information, it can be seen that the event was created after the date of financial reporting. However, the closing down took place before the issue of financial statements by the managing directors. For this reason, this particular event will be considered as a non-adjusting event for Seaford Rise Ltd (legislation.gov.au, 2017).
From the above discussion, it can be seen the closing down operation of one division of Seaford Rise Ltd is a non-adjusting event as this event has taken place after the date of financial reporting. As this event is a non-adjusting event, Seaford Rise Ltd will not make any adjustments regarding this event in the financial statements. Based on the above discussion, it can be concluded that no account of Seaford Rise Ltd in the financial statements is affected due to this event (aasb.gov.au, 2017).
However, it is required for Seaford Rise Ltd to disclose this event in the financial statements in the form of Notes. It is important for Seaford Rise Ltd to mention the closing down amount in the notes as it is a very big amount and it is the right of the investors and stakeholders to get information about this event (cpaaustralia.com.au, 2017). In this context, Seaford Rise Ltd is required to show the whole amount of closing down as a loss of the business. However, it needs to be mentioned that this loss will not have any effect on current year profitability of Seaford Rise Ltd as it will have long-term effects on the company’s profitability.
According to the provided event, it can be seen that some of the customers of Foods Chain Ltd is have launched a lawsuit against the company as they were poisoned by the provided foods of Foods Chain Ltd. In addition, after lodging complaint, the customers are claiming $1 million as damage fees. However, the date for court hearing has not been set. In addition, the lawsuit took place after the date of financial reporting that is 25 July 2017. Apart from this, it is required to have sufficient information on this particular event. Thus, based on the above reasons, it can be said that this particular event is a non-adjusting event for Foods Chain Ltd (legislation.gov.au, 2017).
From the above discussion, it can be seen that this particular event is a non-adjusting event for Foods Chain Ltd. According to the provided case, it can be seen that the customers of Foods Chain Ltd have only launched a lawsuit against Foods Chain Ltd, but the court has not taken any specific action against the company. Moreover, Foods Chain Ltd has not got any instruction from the court to pay the fine. For all these reasons, this specific event does not have any effect on any of the accounts of the financial statements of Foods Chain Ltd (aasb.gov.au, 2017).
From the above discussion, it can be seen that the particular event does not have any effect on the financial statements of Foods Chain Ltd. However, this event has created a different situation for Foods Chain Ltd. In this context, it is required to be mentioned that this event has occurred after the reporting date. In addition, it does not have any material effect on the financial statements of the company (cpaaustralia.com.au, 2017). Thus, based on the above discussion, it can be conclude that there is nit any need for disclosing this event in the financial statement by Foods Chain Ltd.
References
Events after the Reporting Period. (2017). Aasb.gov.au. Retrieved 30 November 2017, from https://www.aasb.gov.au/admin/file/content105/c9/AASB110_07-04_COMPdec09_01-11.pdf
Events after the Reporting Period. (2017). Aasb.gov.au. Retrieved 30 November 2017, from https://www.aasb.gov.au/admin/file/content105/c9/AASB110_08-15.pdf
IAS 10 EVENTS AFTER THE REPORTING PERIOD. (2017). Cpaaustralia.com.au. Retrieved 30 November 2017, from https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-resources/ifrs-factsheets/factsheet-ias10-events-after-the-reporting-period.pdf?la=en
AASB 110 – Events after the Balance Sheet Date – July 2004 . (2017). Legislation.gov.au. Retrieved 30 November 2017, from https://www.legislation.gov.au/Details/F2005
AASB 110 – Events after the Reporting Period – August 2015 . (2017). Legislation.gov.au. Retrieved 30 November 2017, from https://www.legislation.gov.au/Details/F201
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