Page 8 - 29. COMPILER QB - IND AS 10

QUESTIONS FROM PAST EXAM PAPERS

Q7 (November 19 – 8 Marks)

Discuss with reasons whether these events are in nature of adjusting or non-adjusting and the treatment
needed in light of accounting standard Ind AS 10.
(i) Moon Ltd. won an arbitration award on 25th April, 2019 for Rs. 1 crore. From the arbitration proceeding,
it was evident that the Company is most likely to win the arbitration award. The directors approved the

financial statements for the year ending 31.03.2019 on 1st May, 2019. The management did not consider
the effect of the above transaction in Financial Year 2018-2019, as it was favourable to the Company
and the award came after the end of the financial year.
(ii) Zoom Ltd. has a trading business of Mobile telephones. The Company has purchased 1000 mobiles phones
at Rs 5,000 each on 15th March, 2019. The manufacturers of the phone had announced the release of the
new version on 1stMarch, 2019 but had not announced the price. Zoom Ltd. has valued inventory at cost

of Rs 5,000 each at the year ending 31st March, 2019.
Due to the arrival of a new advanced version of Mobile Phone on 8th April, 2019, the selling prices of
the mobile stocks remaining with the Company were dropped at Rs 4,000 each.
The financial statements of the company valued mobile phones @ Rs 5,000 each and not at the

value @ Rs 4,000 less expenses on sales, as the price reduction in selling price was affected after
31.03.2019.
(iii) There was an old due from a debtor amounting to Rs 15 lakh against whom insolvency proceedings was
instituted prior to the financial year ending 31st March, 2019. The debtor was declared insolvent on 15th
April, 2019.
(iv) Assume that subsequent to the year end and before the financial statements are approved, Company’s

management announces that it will restructure the operation of the company. Management plans to make
significant redundancies and to close a few divisions of the company's business; however, there is no
formal plan yet. Should management recognise a provision in the books, if the company decides
subsequent to the end of the accounting year to restructure its operations?

SOLUTION
As per Ind AS 10, the treatment of stated issues would be as under:

(i) Adjusting event: It is an adjusting event as it is the settlement after the reporting period of a court
case that confirms that the entity had a present obligation at the end of the reporting period. Even
though winning of award is favorable to the company, it should be accounted in its books as receivable
since it is an adjusting event.
(ii) Adjusting event: The sale of inventories after the reporting period may give evidence about their net

realizable value at the end of the reporting period; hence it is an adjusting event as per Ind AS 10. Zoom
Limited should value its inventory at Rs 40,00,000. Hence, appropriate provision must be made for Rs 15
lakh.
(iii) Adjusting event: As per Ind AS 10, the receipt of information after the reporting period indicating that
an asset was impaired at the end of the reporting period, or that the amount of a previously recognised
impairment loss for that asset needs to be adjusted.

The bankruptcy of a customer that occurs after the reporting period usually confirms that the customer was
credit-impaired at the end of the reporting period.
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