Page 6 - 29. COMPILER QB - IND AS 10

MTPs QUESTIONS

Q5 (April 19)

On 5th April, 20X2, fire damaged a consignment of inventory at one of the Jupiter’s Ltd.’s warehouse. This
inventory had been manufactured prior to 31st March 20X2 costing Rs. 8 lakhs. The net realisable value of
the inventory prior to the damage was estimated at Rs. 9.60 lakhs. Because of the damage caused to the
consignment of inventory, the company was required to spend an additional amount of Rs. 2 lakhs on
repairing and re-packaging of the inventory. The inventory was sold on 15th May, 20X2 for proceeds of Rs. 9

lakhs.
The accountant of Jupiter Ltd. treats this event as an adjusting event and adjusts this event of causing the
damage to the inventory in its financial statement and accordingly re-measures the inventories as follows: Rs.
Lakhs
Cost 8.00
Net realisable value (9.6 -2) 7.60
Inventories (lower of cost and net realisable value) 7.60

Analyse whether the above accounting treatment made by the accountant in regard to the financial year
ending on 31.0.20X2 is in compliance with the Ind AS. If not, advise the correct treatment along with working
for the same.

SOLUTION
The above treatment needs to be examined in the light of the provisions given in Ind AS 10 ‘Events after the
Reporting Period’ and Ind AS 2 ‘Inventories’.
Ind AS 10 ‘Events after the Reporting Period’ defines “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).
Further, paragraph 10 of Ind AS 10 states that:
“An entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events
after the reporting period”.
Further, Ind AS 2 defines:

“Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs
of completion and the estimated costs necessary to make the sale”.
Further, Ind AS 2 states that:
“Inventories shall be measured at the lower of cost and net realisable value”.
Accountant of Jupiter Ltd. has re-measured the inventories after adjusting the event in its financial

statement which is not correct and nor in accordance with provision of Ind AS 2 and Ind AS 10.
Accordingly, the event causing the damage to the inventory occurred after the reporting date and as per the
principles laid down under Ind AS 10 ‘Events After the Reporting Date’ is a non-adjusting event as it does not
affect conditions at the reporting date. Non-adjusting events are not recognised in the financial statements,
but are disclosed where their effect is material.
29. 5