A company's year end is 31 December and its accounts are authorised on 20 March. Which event is an adjusting event after the reporting period?
Answer and explanation
Correct answer: D. A customer is declared insolvent on 15 January, and its debt of £40,000 existed at the year end and is now irrecoverable
- Step 1: An adjusting event provides evidence of conditions that existed at the end of the reporting period.
- Step 2: The insolvency confirms that the debt was already doubtful at 31 December, so the receivable is written off.
Answer
A customer is declared insolvent on 15 January, and its debt of £40,000 existed at the year end and is now irrecoverable.
Why not the others: A fire in February is a new condition, so it is non-adjusting and is disclosed if material. A restructuring announced in March does not show a condition at the year end, so no adjustment is made. A share issue in January is a new transaction after the year end, so it is non-adjusting.
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