Page 3 - 29. COMPILER QB - IND AS 10

register the deed. The registration post the balance sheet date only confirms the condition of sale at the
balance sheet date as per Ind AS 10 “Events after the Reporting Period.”

Q2 (RTP May 19)
XYZ Ltd. was formed to secure the tenders floated by a telecom company for publication of telephone

directories. It bagged the tender for publishing directories for Pune circle for 5 years. It has made a profit in
2013-2014, 2014-2015, 2015-2016 and 2016-2017. It bid in tenders for publication of directories for other
circles – Nagpur, Nashik, Mumbai, Hyderabad but as per the results declared on 23rd April, 2017, the company
failed to bag any of these. Its only activity till date is publication of the Pune directory. The contract for
publication of directories for Pune will expire on 31st December 2017. The financial statements for the F.Y.

2016-17 have been approved by the Board of Directors on July 10, 2017.
Whether it is appropriate to prepare financial statements on a going concern basis?
SOLUTION

With regard to going concern basis to be followed for preparation of financial statements, Ind AS 10 provides
as follows:
“An entity shall not prepare its financial statements on a going concern basis if management determines
after the reporting period either that it intends to liquidate the entity or to cease trading, or that it has no

realistic alternative but to do so.
Deterioration in operating results and financial position after the reporting period may indicate a need to
consider whether the going concern assumption is still appropriate. If the going concern assumption is no
longer appropriate, the effect is so pervasive that this Standard requires a fundamental change in the basis of
accounting, rather than an adjustment to the amounts recognised within the original basis of accounting.”
In accordance with the above, an entity needs to change the basis of accounting if the effect of deterioration

in operating results and financial position is so pervasive that management determines after the reporting
period either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative
but to do so.
In the instant case, since contract is expiring on 31st December 2017 and it is confirmed on 23rd April, 2017,
i.e., after the end of the reporting period and before the approval of the financial statements, that no further

contact is secured, implies that the entity’s operations are expected to come to an end. Accordingly, if an
entity's operations are expected to come to an end, the entity needs to make a judgement as to whether it
has any realistic possibility to continue or not. In case, the entity determines that it has no realistic
alternative of continuing the business, preparation of financial statements for 2016-17 and thereafter on-going
concern basis may not be appropriate.

Q3 (RTP Nov 19)

ABC Ltd. received a demand notice on 15thJune, 2017 for an additional amount of Rs. 28,00,000 from the
Excise Department on account of higher excise duty levied by the Excise Department compared to the rate at
which the company was creating provision and depositing the same. The financial statements for the year
2016-17 are approved on 10thAugust, 2017. In July, 2017, the company appealed against the demand of Rs.
28,00,000 and the company had expected that the demand would be settled at Rs. 15,00,000only. Show
how the above event will have a bearing on the financial statements for the year 2016-17. Whether these

events are adjusting or non-adjusting events and explain the treatment accordingly.
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