Page 9 - 29. COMPILER QB - IND AS 10

(iv) Non – adjusting event:
Announcing or commencing the implementation of a major restructuring after the reporting period is a
non-adjusting event as per Ind AS 10. Though this is a non- adjusting event that occurred after the

reporting period, it would result in disclosure of the event in the financial statements, if restructuring is
material.
This would not require provision since as per Ind AS 37, decision to restructure was not taken before or
on the reporting date. Hence, it does not give rise to a constructive obligation at the end of the reporting
period to create a provision.

Q8 (January 21 – 8 Marks)

H Ltd. constructed a warehouse at a cost of Rs. 10 lakhs in 2015. It first became available for use by H Ltd.
on 1st January 2016. On 29th January 2020, H Ltd. discovered that its warehouse was damaged. During early
February 2020, an investigation revealed that the damage was due to a structural fault in the construction of
the warehouse. The fault became apparent when the warehouse building leaked severely after heavy rainfall in
the week ended 27th January 2020. The discovery of the fault is an indication of impairment. So, H Ltd. was
required to estimate the recoverable amount of its warehouse at 31st December 2019. This estimate was Rs.

6,00,000. Furthermore, H Ltd. reassessed the useful life of its warehouse at 20 years from the date that it
was ready for use. Before discovering the fault, H Ltd. had depreciated the warehouse on the straight-line
method to a nil residual value over its estimated 30-year useful life.
Seepage of rainwater through the crack in the warehouse caused damage to inventory worth about Rs. 1,00,000

(cost price) and became un-saleable. The entire damaged inventory was on hand as at 31st December, 2019.
H Ltd. has not insured against any of the losses.
It accounts for all its property, plant and equipment under the cost model. H Ltd.’s annual financial
statements for the year ended 31st December, 2019 were approved for issue by the Board of Directors on
28th February, 2020.
You are required to:
(i) Prepare accounting entries to record the effects of the events after the end of the reporting period in

the accounting records of H Ltd. for the year ended 31st December, 2019. Kindly ignore tax impact;
(ii) Discuss disclosure requirement in above case as per relevant Ind AS; and
(iii) Will your answer be different if there was no structural fault and damage to the warehouse had been
caused by an event that occurred after 31 st December, 2019?

SOLUTION
i) Journal Entries on 31st December 2019

Rs. Rs.
Depreciation expense A/c (W.N.1) Dr. 19,608
To Warehouse or Accumulated depreciation A/c 19,608
(Being additional depreciation expense recognised for the
year ended 31st December 2019 arising from the
reassessment of the useful life of the warehouse)

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