IAS 10Workpapers (Step 4 of 5)

Workpaper template

Step 4 of 5

IAS 10 Events after the Reporting Period — wording before IFRS 18Applicable today

Applies to annual periods beginning before January 1, 2027.

WorkpaperIAS 10 — Events after the Reporting PeriodL1 · L2 · L3 · L4

Schedule of adjustments for events after the reporting period

5 missions9 sections to document40 min

Prepared by: AI-assisted draft
Reviewed by: Not reviewed — human review required
Status: Published

Objective of the workpaper

For adjusting events, quantify at the reporting date the adjustment of the litigation provision, the additional loss allowance on receivables, the inventory write-down indicated by a later sale and the effect of a fraud discovered before authorisation; compute the tax effect at the rate given by the case, the adjusted profit and post the closing entries.

9 sections · 35 blocks · 9 calculations · 6 entries

IAS 10 §3
IAS 10 §8
IAS 10 §9

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

5 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity

Lawsuit settled and customer bankruptcy after the reporting date: adjustments and tax effect

Case tasks documented here

Compute the adjustment to the litigation provision.
Compute the additional loss allowance on Orbecq.
Total the pre-tax adjustments.
Compute the tax effect.
Determine the adjusted profit.
Post the adjusting entries at 31 December 20X5.

Inputs

Reporting date
DateRequired
20X5-12-31
Adjusting events retained and documents
TextRequired
SETTLEMENT_AND_CUSTOMER_LIQUIDATION
Draft profit before adjustments
NumberRequired
1,140,000
Tax rate applicable to the adjustments (%)
Number
25 %
Case data: rate and tax regime (deductibility, deferred tax) are given by the case; IAS 12 is not taught here.
Amount set by the settlement
Number
245,000
Provision recognised at the reporting date
Number
180,000
Net carrying amount of the receivable at the reporting date
Number
80,000
Expected recoverable amount
Number
14,400
Case data: the expected recovery comes from the documents (liquidator); the IFRS 9 impairment model is not taught here.
Cost of the inventory batch at the reporting date
Number
Selling price obtained after the reporting date
Number
Costs necessary to make the sale
Number
Inventory write-down (cost − amount retained)
Number
Loss revealed by the fraud discovered
Number

Supporting evidence

Evidence

Evidence obtained and referenced (category, document reference)
EvidenceRequired

Adjusting events

Analysis

IAS 10 §3IAS 10 §8IAS 10 §9

Points reviewed
ChecklistRequired
- Lawsuit settled confirming an obligation existing at the reporting date
- Customer bankruptcy revealing an impairment at the reporting date
- Later sale indicating net realisable value
- Fraud or error showing that the statements are incorrect
- Amounts recognised adjusted at the reporting date

Calculation of the adjustments

Calculations

IAS 10 §8IAS 10 §9

Increase in the litigation provision
Calculation
65,000
Amount set by the settlement ; − Provision recognised at the reporting date
Decrease in the litigation provision
Calculation
0
Amount set by the settlement ; − Provision recognised at the reporting date
Additional loss allowance on the receivable
Calculation
65,600
Net carrying amount of the receivable at the reporting date ; − Expected recoverable amount
Net realisable value indicated by the sale
Calculation
0
Selling price obtained after the reporting date ; − Costs necessary to make the sale
Inventory carrying amount: lower of cost and net realisable value
Calculation
Cost of the inventory batch at the reporting date ; Net realisable value indicated by the sale
IAS 2 measurement rule, applied here as a boundary input (frozen IAS 2 baseline).
Total pre-tax adjustments (decrease in profit)
Calculation
130,600
Increase in the litigation provision ; Additional loss allowance on the receivable ; Inventory write-down (cost − amount retained) ; Loss revealed by the fraud discovered ; − Decrease in the litigation provision
Tax effect of the adjustments
Calculation
32,650
Total pre-tax adjustments (decrease in profit) ; Tax rate applicable to the adjustments (%)
Adjustments net of tax
Calculation
97,950
Total pre-tax adjustments (decrease in profit) ; Tax rate applicable to the adjustments (%)
Adjusted profit
Calculation
1,042,050
Draft profit before adjustments ; − Total pre-tax adjustments (decrease in profit) ; Tax effect of the adjustments

Journal entries

Entries

Increase in the litigation provision
Entry
Account Debit Credit
Provision expense 65,000
Litigation provision 65,000
Decrease in the litigation provision
Entry
Debit Litigation provision ← Decrease in the litigation provision ; Credit Reversal of provision ← Decrease in the litigation provision
Additional loss allowance on the receivable
Entry
Account Debit Credit
Impairment loss on receivables 65,600
Loss allowance 65,600
Write-down of inventory to net realisable value
Entry
Debit Inventory write-down expense ← Inventory write-down (cost − amount retained) ; Credit Inventories ← Inventory write-down (cost − amount retained)
Correction of the fraud discovered before authorisation
Entry
Debit Fraud loss ← Loss revealed by the fraud discovered ; Credit Fictitious asset eliminated ← Loss revealed by the fraud discovered
Deferred tax effect of the adjustments
Entry
Account Debit Credit
Deferred tax asset 32,650
Deferred tax income 32,650
Case data: the adjustments become deductible when realised, hence a deferred tax asset; this treatment is not presented as an IAS 10 rule.

Account	Debit	Credit
Provision expense	65,000
Litigation provision		65,000

Account	Debit	Credit
Impairment loss on receivables	65,600
Loss allowance		65,600

Account	Debit	Credit
Deferred tax asset	32,650
Deferred tax income		32,650

Condition existing at the reporting date

Judgment

IAS 10 §3IAS 10 §8IAS 10 §9

Do the adjustments relate to conditions existing at the reporting date?
JudgmentRequired
Yes: conditions existing at the reporting date
Yes: conditions existing at the reporting date / No: condition arising after the reporting date, to be removed from the schedule
Rationale: facts relied on, analysis, alternative rejected
TextRequired
OBLIGATION_AND_DIFFICULTIES_EXISTED_AT_YEAR_END

Conclusion

Adjustments, adjusted profit and entries
ConclusionRequired

Effect on the financial statements

FS impact

Effect of the entries, line by line (derived from the entries)
TableRequired

Normative references

References

Normative references
References

Checks and financial statement impact

Condition at the reporting date documentedPass
Balanced entryPass
Balanced entryNot evaluated
Balanced entryPass
Balanced entryNot evaluated
Balanced entryNot evaluated
Balanced entryPass

Assets: -32,950
Liabilities: 65,000
Profit or loss: -97,950
OCI: 0
Equity: -97,950

File and entity

Inventory sold at a loss and investments down after the reporting date: adjust or disclose?

Case tasks documented here

Compute the net realisable value of each batch.
Determine the value of each batch at the reporting date and the write-down.
Post the adjusting entry at 31 December 20X5.

Inputs

Reporting date
DateRequired
20X5-12-31
Adjusting events retained and documents
TextRequired
SALE_AFTER_YEAR_END_GIVES_NRV
Draft profit before adjustments
NumberRequired
Tax rate applicable to the adjustments (%)
Number
Case data: rate and tax regime (deductibility, deferred tax) are given by the case; IAS 12 is not taught here.
Amount set by the settlement
Number
Provision recognised at the reporting date
Number
Net carrying amount of the receivable at the reporting date
Number
Expected recoverable amount
Number
Case data: the expected recovery comes from the documents (liquidator); the IFRS 9 impairment model is not taught here.
Cost of the inventory batch at the reporting date
Number
210,000
Selling price obtained after the reporting date
Number
176,000
Costs necessary to make the sale
Number
8,800
Inventory write-down (cost − amount retained)
Number
42,800
Loss revealed by the fraud discovered
Number

Supporting evidence

Evidence

Evidence obtained and referenced (category, document reference)
EvidenceRequired

Adjusting events

Analysis

IAS 10 §3IAS 10 §8IAS 10 §9

Points reviewed
ChecklistRequired
- Lawsuit settled confirming an obligation existing at the reporting date
- Customer bankruptcy revealing an impairment at the reporting date
- Later sale indicating net realisable value
- Fraud or error showing that the statements are incorrect
- Amounts recognised adjusted at the reporting date

Calculation of the adjustments

Calculations

IAS 10 §8IAS 10 §9

Increase in the litigation provision
Calculation
0
Amount set by the settlement ; − Provision recognised at the reporting date
Decrease in the litigation provision
Calculation
0
Amount set by the settlement ; − Provision recognised at the reporting date
Additional loss allowance on the receivable
Calculation
0
Net carrying amount of the receivable at the reporting date ; − Expected recoverable amount
Net realisable value indicated by the sale
Calculation
167,200
Selling price obtained after the reporting date ; − Costs necessary to make the sale
Inventory carrying amount: lower of cost and net realisable value
Calculation
167,200
Cost of the inventory batch at the reporting date ; Net realisable value indicated by the sale
IAS 2 measurement rule, applied here as a boundary input (frozen IAS 2 baseline).
Total pre-tax adjustments (decrease in profit)
Calculation
42,800
Increase in the litigation provision ; Additional loss allowance on the receivable ; Inventory write-down (cost − amount retained) ; Loss revealed by the fraud discovered ; − Decrease in the litigation provision
Tax effect of the adjustments
Calculation
Total pre-tax adjustments (decrease in profit) ; Tax rate applicable to the adjustments (%)
Adjustments net of tax
Calculation
Total pre-tax adjustments (decrease in profit) ; Tax rate applicable to the adjustments (%)
Adjusted profit
Calculation
Draft profit before adjustments ; − Total pre-tax adjustments (decrease in profit) ; Tax effect of the adjustments

Journal entries

Entries

Increase in the litigation provision
Entry
Debit Provision expense ← Increase in the litigation provision ; Credit Litigation provision ← Increase in the litigation provision
Decrease in the litigation provision
Entry
Debit Litigation provision ← Decrease in the litigation provision ; Credit Reversal of provision ← Decrease in the litigation provision
Additional loss allowance on the receivable
Entry
Debit Impairment loss on receivables ← Additional loss allowance on the receivable ; Credit Loss allowance ← Additional loss allowance on the receivable
Write-down of inventory to net realisable value
Entry
Account Debit Credit
Inventory write-down expense 42,800
Inventories 42,800
Correction of the fraud discovered before authorisation
Entry
Debit Fraud loss ← Loss revealed by the fraud discovered ; Credit Fictitious asset eliminated ← Loss revealed by the fraud discovered
Deferred tax effect of the adjustments
Entry
Debit Deferred tax asset ← Tax effect of the adjustments ; Credit Deferred tax income ← Tax effect of the adjustments
Case data: the adjustments become deductible when realised, hence a deferred tax asset; this treatment is not presented as an IAS 10 rule.

Account	Debit	Credit
Inventory write-down expense	42,800
Inventories		42,800

Condition existing at the reporting date

Judgment

IAS 10 §3IAS 10 §8IAS 10 §9

Do the adjustments relate to conditions existing at the reporting date?
JudgmentRequired
Yes: conditions existing at the reporting date
Yes: conditions existing at the reporting date / No: condition arising after the reporting date, to be removed from the schedule
Rationale: facts relied on, analysis, alternative rejected
TextRequired
SALE_CONFIRMS_VALUE_AT_YEAR_END

Conclusion

Adjustments, adjusted profit and entries
ConclusionRequired

Effect on the financial statements

FS impact

Effect of the entries, line by line (derived from the entries)
TableRequired

Normative references

References

Normative references
References

Checks and financial statement impact

Condition at the reporting date documentedPass
Balanced entryNot evaluated
Balanced entryNot evaluated
Balanced entryNot evaluated
Balanced entryPass
Balanced entryNot evaluated
Balanced entryNot evaluated

Assets: -42,800
Liabilities: 0
Profit or loss: -42,800
OCI: 0
Equity: -42,800

File and entity

Inventory sold at a loss and investments down after the reporting date: adjust or disclose?

Case tasks documented here

Compute the net realisable value of each batch.
Determine the value of each batch at the reporting date and the write-down.
Post the adjusting entry at 31 December 20X5.

Inputs

Reporting date
DateRequired
20X5-12-31
Adjusting events retained and documents
TextRequired
SALE_AFTER_YEAR_END_GIVES_NRV
Draft profit before adjustments
NumberRequired
Tax rate applicable to the adjustments (%)
Number
Case data: rate and tax regime (deductibility, deferred tax) are given by the case; IAS 12 is not taught here.
Amount set by the settlement
Number
Provision recognised at the reporting date
Number
Net carrying amount of the receivable at the reporting date
Number
Expected recoverable amount
Number
Case data: the expected recovery comes from the documents (liquidator); the IFRS 9 impairment model is not taught here.
Cost of the inventory batch at the reporting date
Number
95,000
Selling price obtained after the reporting date
Number
120,000
Costs necessary to make the sale
Number
4,000
Inventory write-down (cost − amount retained)
Number
Loss revealed by the fraud discovered
Number

Supporting evidence

Evidence

Evidence obtained and referenced (category, document reference)
EvidenceRequired

Adjusting events

Analysis

IAS 10 §3IAS 10 §8IAS 10 §9

Points reviewed
ChecklistRequired
- Lawsuit settled confirming an obligation existing at the reporting date
- Customer bankruptcy revealing an impairment at the reporting date
- Later sale indicating net realisable value
- Fraud or error showing that the statements are incorrect
- Amounts recognised adjusted at the reporting date

Calculation of the adjustments

Calculations

IAS 10 §8IAS 10 §9

Increase in the litigation provision
Calculation
0
Amount set by the settlement ; − Provision recognised at the reporting date
Decrease in the litigation provision
Calculation
0
Amount set by the settlement ; − Provision recognised at the reporting date
Additional loss allowance on the receivable
Calculation
0
Net carrying amount of the receivable at the reporting date ; − Expected recoverable amount
Net realisable value indicated by the sale
Calculation
116,000
Selling price obtained after the reporting date ; − Costs necessary to make the sale
Inventory carrying amount: lower of cost and net realisable value
Calculation
95,000
Cost of the inventory batch at the reporting date ; Net realisable value indicated by the sale
IAS 2 measurement rule, applied here as a boundary input (frozen IAS 2 baseline).
Total pre-tax adjustments (decrease in profit)
Calculation
0
Increase in the litigation provision ; Additional loss allowance on the receivable ; Inventory write-down (cost − amount retained) ; Loss revealed by the fraud discovered ; − Decrease in the litigation provision
Tax effect of the adjustments
Calculation
Total pre-tax adjustments (decrease in profit) ; Tax rate applicable to the adjustments (%)
Adjustments net of tax
Calculation
Total pre-tax adjustments (decrease in profit) ; Tax rate applicable to the adjustments (%)
Adjusted profit
Calculation
Draft profit before adjustments ; − Total pre-tax adjustments (decrease in profit) ; Tax effect of the adjustments

Journal entries

Entries

Increase in the litigation provision
Entry
Debit Provision expense ← Increase in the litigation provision ; Credit Litigation provision ← Increase in the litigation provision
Decrease in the litigation provision
Entry
Debit Litigation provision ← Decrease in the litigation provision ; Credit Reversal of provision ← Decrease in the litigation provision
Additional loss allowance on the receivable
Entry
Debit Impairment loss on receivables ← Additional loss allowance on the receivable ; Credit Loss allowance ← Additional loss allowance on the receivable
Write-down of inventory to net realisable value
Entry
Debit Inventory write-down expense ← Inventory write-down (cost − amount retained) ; Credit Inventories ← Inventory write-down (cost − amount retained)
Correction of the fraud discovered before authorisation
Entry
Debit Fraud loss ← Loss revealed by the fraud discovered ; Credit Fictitious asset eliminated ← Loss revealed by the fraud discovered
Deferred tax effect of the adjustments
Entry
Debit Deferred tax asset ← Tax effect of the adjustments ; Credit Deferred tax income ← Tax effect of the adjustments
Case data: the adjustments become deductible when realised, hence a deferred tax asset; this treatment is not presented as an IAS 10 rule.

Condition existing at the reporting date

Judgment

IAS 10 §3IAS 10 §8IAS 10 §9

Do the adjustments relate to conditions existing at the reporting date?
JudgmentRequired
Yes: conditions existing at the reporting date
Yes: conditions existing at the reporting date / No: condition arising after the reporting date, to be removed from the schedule
Rationale: facts relied on, analysis, alternative rejected
TextRequired
SALE_CONFIRMS_VALUE_AT_YEAR_END

Conclusion

Adjustments, adjusted profit and entries
ConclusionRequired

Effect on the financial statements

FS impact

Effect of the entries, line by line (derived from the entries)
TableRequired

Normative references

References

Normative references
References

Checks and financial statement impact

Condition at the reporting date documentedPass
Balanced entryNot evaluated
Balanced entryNot evaluated
Balanced entryNot evaluated
Balanced entryNot evaluated
Balanced entryNot evaluated
Balanced entryNot evaluated

Assets: 0
Liabilities: 0
Profit or loss: 0
OCI: 0
Equity: 0

File and entity

Fraud discovered before approval and announced tax rate change: the IAS 10 / IAS 8 / IAS 12 boundary

Case tasks documented here

Compute the tax effect of the fraud correction.
Determine the adjusted 20X5 profit.
Post the adjusting entries at 31 December 20X5.

Inputs

Reporting date
DateRequired
20X5-12-31
Adjusting events retained and documents
TextRequired
FRAUD_DISCOVERED_BEFORE_ISSUE
Draft profit before adjustments
NumberRequired
2,050,000
Tax rate applicable to the adjustments (%)
Number
25 %
Case data: rate and tax regime (deductibility, deferred tax) are given by the case; IAS 12 is not taught here.
Amount set by the settlement
Number
Provision recognised at the reporting date
Number
Net carrying amount of the receivable at the reporting date
Number
Expected recoverable amount
Number
Case data: the expected recovery comes from the documents (liquidator); the IFRS 9 impairment model is not taught here.
Cost of the inventory batch at the reporting date
Number
Selling price obtained after the reporting date
Number
Costs necessary to make the sale
Number
Inventory write-down (cost − amount retained)
Number
Loss revealed by the fraud discovered
Number
186,000

Supporting evidence

Evidence

Evidence obtained and referenced (category, document reference)
EvidenceRequired

Adjusting events

Analysis

IAS 10 §3IAS 10 §8IAS 10 §9

Points reviewed
ChecklistRequired
- Lawsuit settled confirming an obligation existing at the reporting date
- Customer bankruptcy revealing an impairment at the reporting date
- Later sale indicating net realisable value
- Fraud or error showing that the statements are incorrect
- Amounts recognised adjusted at the reporting date

Calculation of the adjustments

Calculations

IAS 10 §8IAS 10 §9

Increase in the litigation provision
Calculation
0
Amount set by the settlement ; − Provision recognised at the reporting date
Decrease in the litigation provision
Calculation
0
Amount set by the settlement ; − Provision recognised at the reporting date
Additional loss allowance on the receivable
Calculation
0
Net carrying amount of the receivable at the reporting date ; − Expected recoverable amount
Net realisable value indicated by the sale
Calculation
0
Selling price obtained after the reporting date ; − Costs necessary to make the sale
Inventory carrying amount: lower of cost and net realisable value
Calculation
Cost of the inventory batch at the reporting date ; Net realisable value indicated by the sale
IAS 2 measurement rule, applied here as a boundary input (frozen IAS 2 baseline).
Total pre-tax adjustments (decrease in profit)
Calculation
186,000
Increase in the litigation provision ; Additional loss allowance on the receivable ; Inventory write-down (cost − amount retained) ; Loss revealed by the fraud discovered ; − Decrease in the litigation provision
Tax effect of the adjustments
Calculation
46,500
Total pre-tax adjustments (decrease in profit) ; Tax rate applicable to the adjustments (%)
Adjustments net of tax
Calculation
139,500
Total pre-tax adjustments (decrease in profit) ; Tax rate applicable to the adjustments (%)
Adjusted profit
Calculation
1,910,500
Draft profit before adjustments ; − Total pre-tax adjustments (decrease in profit) ; Tax effect of the adjustments

Journal entries

Entries

Increase in the litigation provision
Entry
Debit Provision expense ← Increase in the litigation provision ; Credit Litigation provision ← Increase in the litigation provision
Decrease in the litigation provision
Entry
Debit Litigation provision ← Decrease in the litigation provision ; Credit Reversal of provision ← Decrease in the litigation provision
Additional loss allowance on the receivable
Entry
Debit Impairment loss on receivables ← Additional loss allowance on the receivable ; Credit Loss allowance ← Additional loss allowance on the receivable
Write-down of inventory to net realisable value
Entry
Debit Inventory write-down expense ← Inventory write-down (cost − amount retained) ; Credit Inventories ← Inventory write-down (cost − amount retained)
Correction of the fraud discovered before authorisation
Entry
Account Debit Credit
Fraud loss 186,000
Fictitious asset eliminated 186,000
Deferred tax effect of the adjustments
Entry
Account Debit Credit
Deferred tax asset 46,500
Deferred tax income 46,500
Case data: the adjustments become deductible when realised, hence a deferred tax asset; this treatment is not presented as an IAS 10 rule.

Account	Debit	Credit
Fraud loss	186,000
Fictitious asset eliminated		186,000

Account	Debit	Credit
Deferred tax asset	46,500
Deferred tax income		46,500

Condition existing at the reporting date

Judgment

IAS 10 §3IAS 10 §8IAS 10 §9

Do the adjustments relate to conditions existing at the reporting date?
JudgmentRequired
Yes: conditions existing at the reporting date
Yes: conditions existing at the reporting date / No: condition arising after the reporting date, to be removed from the schedule
Rationale: facts relied on, analysis, alternative rejected
TextRequired
FICTITIOUS_ADVANCES_CARRIED_AT_YEAR_END

Conclusion

Adjustments, adjusted profit and entries
ConclusionRequired

Effect on the financial statements

FS impact

Effect of the entries, line by line (derived from the entries)
TableRequired

Normative references

References

Normative references
References

Checks and financial statement impact

Condition at the reporting date documentedPass
Balanced entryNot evaluated
Balanced entryNot evaluated
Balanced entryNot evaluated
Balanced entryNot evaluated
Balanced entryPass
Balanced entryPass

Assets: -139,500
Liabilities: 0
Profit or loss: -139,500
OCI: 0
Equity: -139,500

File and entity

Review file of the events after the reporting period of an industrial group

Case tasks documented here

Compute the adjustment to the provision for the Ostrand dispute.
Compute the loss on the Corbassin receivable.
Determine the net realisable value of the P-series batch and the write-down.
Total the adjustments and compute their tax effect.
Determine the adjusted 20X5 profit.
Post the adjusting entries at 31 December 20X5.

Inputs

Reporting date
DateRequired
20X5-12-31
Adjusting events retained and documents
TextRequired
JUDGMENT_RECEIVERSHIP_AND_SALE_BELOW_COST
Draft profit before adjustments
NumberRequired
3,600,000
Tax rate applicable to the adjustments (%)
Number
25 %
Case data: rate and tax regime (deductibility, deferred tax) are given by the case; IAS 12 is not taught here.
Amount set by the settlement
Number
420,000
Provision recognised at the reporting date
Number
300,000
Net carrying amount of the receivable at the reporting date
Number
180,000
Expected recoverable amount
Number
42,000
Case data: the expected recovery comes from the documents (liquidator); the IFRS 9 impairment model is not taught here.
Cost of the inventory batch at the reporting date
Number
700,000
Selling price obtained after the reporting date
Number
640,000
Costs necessary to make the sale
Number
32,000
Inventory write-down (cost − amount retained)
Number
92,000
Loss revealed by the fraud discovered
Number

Supporting evidence

Evidence

Evidence obtained and referenced (category, document reference)
EvidenceRequired

Adjusting events

Analysis

IAS 10 §3IAS 10 §8IAS 10 §9

Points reviewed
ChecklistRequired
- Lawsuit settled confirming an obligation existing at the reporting date
- Customer bankruptcy revealing an impairment at the reporting date
- Later sale indicating net realisable value
- Fraud or error showing that the statements are incorrect
- Amounts recognised adjusted at the reporting date

Calculation of the adjustments

Calculations

IAS 10 §8IAS 10 §9

Increase in the litigation provision
Calculation
120,000
Amount set by the settlement ; − Provision recognised at the reporting date
Decrease in the litigation provision
Calculation
0
Amount set by the settlement ; − Provision recognised at the reporting date
Additional loss allowance on the receivable
Calculation
138,000
Net carrying amount of the receivable at the reporting date ; − Expected recoverable amount
Net realisable value indicated by the sale
Calculation
608,000
Selling price obtained after the reporting date ; − Costs necessary to make the sale
Inventory carrying amount: lower of cost and net realisable value
Calculation
608,000
Cost of the inventory batch at the reporting date ; Net realisable value indicated by the sale
IAS 2 measurement rule, applied here as a boundary input (frozen IAS 2 baseline).
Total pre-tax adjustments (decrease in profit)
Calculation
350,000
Increase in the litigation provision ; Additional loss allowance on the receivable ; Inventory write-down (cost − amount retained) ; Loss revealed by the fraud discovered ; − Decrease in the litigation provision
Tax effect of the adjustments
Calculation
87,500
Total pre-tax adjustments (decrease in profit) ; Tax rate applicable to the adjustments (%)
Adjustments net of tax
Calculation
262,500
Total pre-tax adjustments (decrease in profit) ; Tax rate applicable to the adjustments (%)
Adjusted profit
Calculation
3,337,500
Draft profit before adjustments ; − Total pre-tax adjustments (decrease in profit) ; Tax effect of the adjustments

Journal entries

Entries

Increase in the litigation provision
Entry
Account Debit Credit
Provision expense 120,000
Litigation provision 120,000
Decrease in the litigation provision
Entry
Debit Litigation provision ← Decrease in the litigation provision ; Credit Reversal of provision ← Decrease in the litigation provision
Additional loss allowance on the receivable
Entry
Account Debit Credit
Impairment loss on receivables 138,000
Loss allowance 138,000
Write-down of inventory to net realisable value
Entry
Account Debit Credit
Inventory write-down expense 92,000
Inventories 92,000
Correction of the fraud discovered before authorisation
Entry
Debit Fraud loss ← Loss revealed by the fraud discovered ; Credit Fictitious asset eliminated ← Loss revealed by the fraud discovered
Deferred tax effect of the adjustments
Entry
Account Debit Credit
Deferred tax asset 87,500
Deferred tax income 87,500
Case data: the adjustments become deductible when realised, hence a deferred tax asset; this treatment is not presented as an IAS 10 rule.

Account	Debit	Credit
Provision expense	120,000
Litigation provision		120,000

Account	Debit	Credit
Impairment loss on receivables	138,000
Loss allowance		138,000

Account	Debit	Credit
Inventory write-down expense	92,000
Inventories		92,000

Account	Debit	Credit
Deferred tax asset	87,500
Deferred tax income		87,500

Condition existing at the reporting date

Judgment

IAS 10 §3IAS 10 §8IAS 10 §9

Do the adjustments relate to conditions existing at the reporting date?
JudgmentRequired
Yes: conditions existing at the reporting date
Yes: conditions existing at the reporting date / No: condition arising after the reporting date, to be removed from the schedule
Rationale: facts relied on, analysis, alternative rejected
TextRequired
OBLIGATION_DIFFICULTIES_AND_PRICE_FALL_EXISTED_AT_YEAR_END

Conclusion

Adjustments, adjusted profit and entries
ConclusionRequired

Effect on the financial statements

FS impact

Effect of the entries, line by line (derived from the entries)
TableRequired

Normative references

References

Normative references
References

Checks and financial statement impact

Condition at the reporting date documentedPass
Balanced entryPass
Balanced entryNot evaluated
Balanced entryPass
Balanced entryPass
Balanced entryNot evaluated
Balanced entryPass

Assets: -142,500
Liabilities: 120,000
Profit or loss: -262,500
OCI: 0
Equity: -262,500

Inputs

Reporting date
DateRequired
Adjusting events retained and documents
TextRequired
Draft profit before adjustments
NumberRequired
Tax rate applicable to the adjustments (%)
Number
Case data: rate and tax regime (deductibility, deferred tax) are given by the case; IAS 12 is not taught here.
Amount set by the settlement
Number
Provision recognised at the reporting date
Number
Net carrying amount of the receivable at the reporting date
Number
Expected recoverable amount
Number
Case data: the expected recovery comes from the documents (liquidator); the IFRS 9 impairment model is not taught here.
Cost of the inventory batch at the reporting date
Number
Selling price obtained after the reporting date
Number
Costs necessary to make the sale
Number
Inventory write-down (cost − amount retained)
Number
Loss revealed by the fraud discovered
Number

Supporting evidence

Evidence

Evidence obtained and referenced (category, document reference)
EvidenceRequired

Adjusting events

Analysis

IAS 10 §3IAS 10 §8IAS 10 §9

Points reviewed
ChecklistRequired
- Lawsuit settled confirming an obligation existing at the reporting date
- Customer bankruptcy revealing an impairment at the reporting date
- Later sale indicating net realisable value
- Fraud or error showing that the statements are incorrect
- Amounts recognised adjusted at the reporting date

Calculation of the adjustments

Calculations

IAS 10 §8IAS 10 §9

Increase in the litigation provision
Calculation
Amount set by the settlement ; − Provision recognised at the reporting date
Decrease in the litigation provision
Calculation
Amount set by the settlement ; − Provision recognised at the reporting date
Additional loss allowance on the receivable
Calculation
Net carrying amount of the receivable at the reporting date ; − Expected recoverable amount
Net realisable value indicated by the sale
Calculation
Selling price obtained after the reporting date ; − Costs necessary to make the sale
Inventory carrying amount: lower of cost and net realisable value
Calculation
Cost of the inventory batch at the reporting date ; Net realisable value indicated by the sale
IAS 2 measurement rule, applied here as a boundary input (frozen IAS 2 baseline).
Total pre-tax adjustments (decrease in profit)
Calculation
Increase in the litigation provision ; Additional loss allowance on the receivable ; Inventory write-down (cost − amount retained) ; Loss revealed by the fraud discovered ; − Decrease in the litigation provision
Tax effect of the adjustments
Calculation
Total pre-tax adjustments (decrease in profit) ; Tax rate applicable to the adjustments (%)
Adjustments net of tax
Calculation
Total pre-tax adjustments (decrease in profit) ; Tax rate applicable to the adjustments (%)
Adjusted profit
Calculation
Draft profit before adjustments ; − Total pre-tax adjustments (decrease in profit) ; Tax effect of the adjustments

Journal entries

Entries

Increase in the litigation provision
Entry
Debit Provision expense ← Increase in the litigation provision ; Credit Litigation provision ← Increase in the litigation provision
Decrease in the litigation provision
Entry
Debit Litigation provision ← Decrease in the litigation provision ; Credit Reversal of provision ← Decrease in the litigation provision
Additional loss allowance on the receivable
Entry
Debit Impairment loss on receivables ← Additional loss allowance on the receivable ; Credit Loss allowance ← Additional loss allowance on the receivable
Write-down of inventory to net realisable value
Entry
Debit Inventory write-down expense ← Inventory write-down (cost − amount retained) ; Credit Inventories ← Inventory write-down (cost − amount retained)
Correction of the fraud discovered before authorisation
Entry
Debit Fraud loss ← Loss revealed by the fraud discovered ; Credit Fictitious asset eliminated ← Loss revealed by the fraud discovered
Deferred tax effect of the adjustments
Entry
Debit Deferred tax asset ← Tax effect of the adjustments ; Credit Deferred tax income ← Tax effect of the adjustments
Case data: the adjustments become deductible when realised, hence a deferred tax asset; this treatment is not presented as an IAS 10 rule.

Condition existing at the reporting date

Judgment

IAS 10 §3IAS 10 §8IAS 10 §9

Do the adjustments relate to conditions existing at the reporting date?
JudgmentRequired
Yes: conditions existing at the reporting date / No: condition arising after the reporting date, to be removed from the schedule
Rationale: facts relied on, analysis, alternative rejected
TextRequired

Conclusion

Adjustments, adjusted profit and entries
ConclusionRequired

Effect on the financial statements

FS impact

Effect of the entries, line by line (derived from the entries)
TableRequired

Normative references

References

Normative references
References