Question 1

Harrier Ltd has borrowed substantially using foreign currency loans.An unexpected major downturn in the Australian economy after reporting date has substantially weakened the Australian dollar,increasing the size of the debt materially.According to AASB 110,how should this event be reported in the financial statements?

Accepted Answer

A)  The foreign currency debt should be restated at the new exchange rates and the loss recognised. 
B)  No reporting is required. 
C)  Harrier Ltd's bank and/or debenture trustees should be notified of the potential that the company may break its debt covenant. 
D)  A note disclosure of the event should be made.

Question 2

The following are material events that occurred for Virgil Ltd between the reporting date and the date when the financial report is authorised for issue. 
$\begin{array}{|l|l|}
\hline \text { I}& \text { Bankruptcy of a customer that occurs after the reporting date } \
\hline \text { II } & \begin{array}{l}
\text { Determination after the reporting date of the costs assets purchased before the } \
\text { reporting date }
\end{array} \
\hline \text { III} & \begin{array}{l}
\text { Decline in market value of investments after the reporting date of investments } \
\text { purchased before the reporting date }
\end{array} \
\hline \mathrm{IV} & \text { Dividends declared after the reporting date } \
\hline \mathrm{V} & \text { A lawsuit filed by a customer after the reporting date } \
\hline \text { VI }& \text { Discovery of fraud that shows that the financial report is incorrect }\
\hline
\end{array}$
Which of the following options identify all the non-adjusting events for Virgil Ltd,in accordance with AASB 110 Events After the Reporting Period?

Accepted Answer

A)  I, II and III 
B)  II, III and IV 
C)  I, II and VI 
D)  III, IV and V

Question 3

The following are material events that occurred for Fraser Island Ltd between the reporting date and the date when the financial report is authorised for issue. 
$\begin{array}{|l|l|}
\hline \text { I }& \text { Acquisition of a major business competitor } \
\hline \text { II } & \text { Discovery of inventory items damaged by floods before the reporting date } \
\hline \text { III } & \begin{array}{l}
\text { Receipt of information after the reporting date indicating that an asset was } \
\text { impaired at reporting date }
\end{array} \
\hline \mathrm{IV} & \begin{array}{l}
\text { Settlement of a court case outstanding for many years that confirms that the } \
\text { entity had a present obligation at the reporting date }
\end{array} \
\hline \mathrm{V} & \text { Major litigation arising solely out of events that occurred after the reporting date } \
\hline \text { VI }& \text { Dividends declared before the reporting date but paid after the reporting date }\
\hline
\end{array}$
Which of the following options identify all the non-adjusting events for Fraser Island Ltd,in accordance with AASB 110 Events After the Reporting Period?

Accepted Answer

A)  I, II, III and VI 
B)  I, II and V 
C)  II, III and V 
D)  III, IV and VI

Question 4

Which of the following material after reporting date events is considered an adjusting event?

Accepted Answer

A)  settlement after reporting date of a court case that confirms that the entity has a present obligation on reporting date 
B)  an announcement of a plan to discontinue a business operation 
C)  decline in market value of investments between reporting date and the date when the financial report is authorised for issue 
D)  settlement after reporting date of a court case that confirms that the entity has a present obligation on reporting date, and decline in market value of investments between reporting date and the date when the financial report is authorised for issue

Question 5

Events after reporting date should not be disclosed because the statement of financial position is 'as at' a particular date.

Accepted Answer

A) True 
 B)False

Question 6

If new events or conditions indicate that the entity will not be able to continue as a going concern,the entity must:

Accepted Answer

A)  treat this as an adjusting event and adjust the affected accounts in the financial report. 
B)  treat this as a non-adjusting event and discloses the reason for the breach of the going concern assumption. 
C)  prepare its financial report on a going concern basis and ask the auditor to indicate in the opinion the breach of the going concern basis. 
D)  disclose the assets and liabilities in the statement of financial position on a liquidation basis.

Question 7

If an entity is no longer a going concern,AASB 110 requires that the financial reports be prepared on a liquidation basis.Discuss why this treatment is inconsistent with the treatment of non-adjusting events.

Accepted Answer

The answer of If an entity is no longer a...

Question 8

Requirements other than those in AASB 110 regarding after-reporting-date events include:

Accepted Answer

A)  The AASB Framework requirement that the financial statements fully reflect all financial effects either through note disclosure or recognition in the financial statements of any events that occur up to the date of completion. 
B)  The Corporations Law requirement that a company's directors must give details in their report of any matter or circumstance that has arisen since the end of the year that has significantly affected, or may significantly affect, the entity's operations or the result of those operations or state of affairs in future financial years. 
C)  The Corporations Law regulations regarding the conduct of an audit that requires auditors to qualify any set of financial statements that do not fully incorporate either in note disclosure or full recognition in the financial statements all events up to the signing of the audit report. 
D)  AASB Framework requires that the financial statements fully reflect all financial effects either through note disclosure or recognition in the financial statements of any events that occur up to the date of completion and The Corporations Law requirement that a company's directors must give details in their report of any matter or circumstance that has arisen since the end of the year that has significantly affected, or may significantly affect, the entity's operations or the result of those operations or state of affairs in future financial years.

Question 9

AASB 110 specifies that adjusting events should be considered against two criteria to determine their treatment.The two criteria are:

Accepted Answer

A)  (a) provides an indication that conditions may have existed at reporting date; or (b) reveals additional solid evidence of a condition that existed at reporting date. 
B)  (a) provides additional evidence of conditions that existed at the date the audit report was signed; or (b) reveals for the first time a condition that existed at date of completion. 
C)  (a) provides an indication that conditions may have existed at date of completion; or (b) reveals additional solid evidence of a condition that existed at date of completion. 
D)  (a) provides additional evidence of conditions that existed at reporting date; or (b) reveals for the first time a condition that existed at reporting date.

Question 10

If it becomes apparent to an entity that new events or conditions have resulted that indicate that the entity is no longer a going concern,the entity must:

Accepted Answer

A)  treat this as a non-adjusting event and discloses the reason for the breach of the going concern assumption. 
B)  treat this as an adjusting event and adjust the affected accounts in the financial report. 
C)  prepare its financial report on a going concern basis and ask the auditor to indicate in the opinion the breach of the going concern basis. 
D)  prepare the financial reports adopting a fundamental change in the basis of accounting, say use of liquidation values instead of modified historical cost basis.

Question 11

Karingai Co Ltd has been experiencing cash flow difficulties and sought a long-term loan from a merchant bank to enable it to restructure its financing from short-term to long-term debt.The loan has been approved by the bank after reporting date and the funds are expected to be received before the time of completion of the accounts.How should this event be reported according to AASB 110?

Accepted Answer

A)  If the loan is material and the effect on the future financial performance of the entity is significant, AASB 110 requires the directors to disclose the event in the Director's Report and incorporate it into the financial statements. 
B)  The directors are required to disclose the event in the Directors' Declaration. 
C)  No note disclosure is required in this case. 
D)  The even should be disclosed in a note, the fact that it occurred after reporting date and its financial effect on the company should be provided.

Question 12

Which of the following material after-reporting-date events is not considered a non-adjusting event?

Accepted Answer

A)  a major acquisition of capital assets after the reporting date 
B)  destruction of inventory by vandals after the reporting date 
C)  changes in tax rates or tax laws enacted or announced after the reporting date 
D)  destruction of inventory on consignment by vandals before the reporting date

Question 13

In the case of a non-adjusting event,AASB 110 requires it to be:

Accepted Answer

A)  reflected in the financial information in the statements if it is material and relates to an item that would normally be reflected in the financial statements. 
B)  disclosed by way of note if it is material. 
C)  disclosed as a contingent liability, if an unfavourable material event. 
D)  reflected in the financial statements, if an unfavourable material event; disclosed by way of note, if a favourable event.

Question 14

Which of the following statements is incorrect with respect to AASB 110 Events After the Reporting Period?

Accepted Answer

A)  An entity shall adjust the amounts recognised in its financial statements to reflect adjusting events after the reporting date. 
B)  If an entity declares dividends to holders of equity instruments after the reporting date, the entity shall not recognise those dividends as a liability at the reporting date. 
C)  An entity may prepare its financial statements on a going concern basis if management determines after the reporting date that it intends to go on voluntary liquidation. 
D)  An entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the reporting date.

Question 15

If an adjusting event that occurs after reporting date is considered to be immaterial AASB 110 requires that the entity:

Accepted Answer

A)  must disclose the nature of the event and a statement that an estimate of the financial effects cannot be made. 
B)  must recognise the event at balance date. 
C)  need not recognise nor disclose the event. 
D)  must recognise the event at balance date and need not recognise nor disclose the event.

Question 16

AASB 110 requires the financial statements to be restated to a liquidation basis and for extensive additional disclosures to be made when a change in going concern status occurs after reporting date.

Accepted Answer

A) True 
 B)False

Question 17

After the auditor has signed the audit report the next step in the process is to:

Accepted Answer

A)  print and distribute the reports. 
B)  have the directors sign the Directors' Declaration. 
C)  prepare the financial statements. 
D)  prepare the notes to the accounts.

Question 18

Explain the period covered by AASB 110 Events After the Reporting Period and discuss how the period covered is determined.

Accepted Answer

The answer of Explain the period covered by AASB 110...

Question 19

Wattle Ltd is in the process of completing its financial reports for the period ended 30 June 2014 when its accountant completes the collection of information about the realisable value of inventory as at reporting date.A number of items are reflected at a cost greater than net realisable value with a material effect on the accounts.What treatment does AASB 110 require for this event?

Accepted Answer

A)  It should be disclosed in the Directors' Declaration. 
B)  The effect on the accounts should be disclosed in the notes to the financial statements. 
C)  No disclosure is required. 
D)  The financial statements should be adjusted to reflect the impact of the event.

Question 20

Provide an example of an adjusting event and explain why this event satisfies the criteria of AASB 110 Events After the Reporting Period.

Accepted Answer

The answer of Provide an example of an adjusting event...

Exam 23: Events Occurring After the End of the Reporting Period