Page 4 - 29. COMPILER QB - IND AS 10

SOLUTION

Events after the reporting period are those events, favourable and unfavourable, that occur between the end of
the reporting period and the date when the financial statements are approved by the Board of Directors in
case of a company, and, by the corresponding approving authority in case of any other entity for issue. Two
types of events can be identified:

a) those that provide evidence of conditions that existed at the end of the reporting period (adjusting events
after the reporting period); and
b) those that are indicative of conditions that arose after the reporting period (non- adjusting events after
the reporting period)
In the instant case, the demand notice has been received on 15thJune, 2017, which is between the end of the

reporting period and the date of approval of financial statements. Therefore, it is an event after the reporting
period. This demand for additional amounts has been raised because of a higher rate of excise duty levied by
the Excise Department in respect of goods already manufactured during the reporting period. Accordingly, the
condition exists on 31st March, 2017, as the goods have been manufactured during the reporting period on
which additional excise duty has been levied and this event has been confirmed by the receipt of demand
notice. Therefore, it is an adjusting event.

In accordance with the principles of Ind AS 37, the company should make a provision in the financial
statements for the year 2016-17, at best estimate of the expenditure to be incurred, i.e., Rs.15,00,000.

Q4 (RTP November 20)

In one of the plants of PQR Ltd., fire broke out on 10.05.2020 in which the entire plant was damaged. PQR
Ltd. estimated the loss of Rs.40,00,000 due to fire. The company filed a claim with the insurance company
and expects recovery of Rs.27,00,000 from the claim. The financial statements for the year ending 31.03.2020

were approved by the Board of Directors on 12th June, 2020. Discuss the accounting treatment of the above
situation.
SOLUTION

Events after the reporting period are those events, favourable and unfavourable, that occur between the end of
the reporting period and the date when the financial statements are approved by the Board of Directors in
case of a company, and, by the corresponding approving authority in case of any other entity for issue.
Two types of events can be identified:

(a) those that provide evidence of conditions that existed at the end of the reporting period (adjusting
events after the reporting period); and
(b) those that are indicative of conditions that arose after the reporting period (non-adjusting events after
the reporting period).
An entity shall adjust the amounts recognised in its financial statements to reflect adjusting events after the

reporting period. In the instant case, since fire took place after the end of the reporting period, it is a non-
adjusting event. However, in accordance with para 21 of Ind AS 10, disclosures regarding non-adjusting events
should be made in the financial statements, i.e., the nature of the event and the expected financial effect of
the same.
With regard to the going concern basis followed for preparation of financial statements, the company needs to
determine whether it is appropriate to prepare the financial statements on going concern basis, since there is

only one plant which has been damaged due to fire. If the effect of deterioration in operating results and
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