Liquidation or cessation decided after the reporting period

Learning objectives

• Assess whether a decision, or the absence of a realistic alternative, arising after the end of the reporting period precludes preparing the financial statements on a going concern basis.L3, L4
• Identify the situations after the end of the reporting period that require the going concern assumption, and the related disclosures, to be reconsidered.L2, L3

Normative references

• IAS 10 §14An entity does not prepare its financial statements on a going concern basis if management determines after the reporting period either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so.
• IAS 10 §15A deterioration in operating results and financial position after the reporting period may indicate a need to consider whether the going concern assumption is still appropriate; if it is no longer appropriate, the effect is so pervasive that it results in a fundamental change in the basis of accounting rather than an adjustment to the amounts recognised within the original basis.
• IAS 10 §16IAS 1 specifies the disclosures required when the financial statements are not prepared on a going concern basis or when management is aware of material uncertainties that may cast significant doubt on the entity's ability to continue as a going concern; the events or conditions requiring those disclosures may arise after the reporting period.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

19 questions

• In which case must an entity not prepare its financial statements on a going concern basis under IAS 10?L2
• An entity's results and financial position deteriorate sharply after the reporting period. What must it do?L2
• If the going concern assumption is no longer appropriate after the reporting period, what is the effect on the financial statements?L3
• Which standard, according to IAS 10, specifies the disclosures about material uncertainties related to going concern?L2
• Which of these situations, arising after the reporting period, prevent the accounts from being prepared on a going concern basis?L2
• Which statements about going concern and events after the reporting period are correct?L3
• Under IAS 10's reference to IAS 1 (wording before IFRS 18), in which situations are going concern disclosures required?L3
• In February, Vaitorn's shareholders decide to liquidate it. For the accounts at 31 December, the accountant keeps the going concern basis and merely writes down some inventories. What is the error?L3
• After the reporting period, Vaurval loses its two main customers and its cash collapses. Management assesses going concern solely on the basis of the position at 31 December. What is the error?L2
• In February, Vausade's bank refuses to renew its credit line; negotiations are under way. Management considers the going concern assumption still appropriate but acknowledges a material uncertainty, without saying anything about it in the notes. What is the error?L3
• Vaustouël has a 31 December year-end. On 25 February, before the accounts are authorised, its shareholders vote to dissolve and liquidate the company. On what basis should the accounts for the year just ended be prepared?L3
• Virgence runs a single licensed activity. In January, the authority permanently withdraws the licence; no conversion is possible and management concludes, before authorisation, that the activity will have to cease. What is the consequence for the accounts at 31 December?L3
• In January, Vrairois loses a contract accounting for 60% of its revenue and builds up monthly losses. No decision to cease trading is taken. What must management do before authorising the accounts at 31 December?L2
• After the reporting period, Vraistine's main lender demands early repayment of a loan; refinancing is at an advanced stage of negotiation. Management concludes that the going concern assumption remains appropriate, with a material uncertainty. Which treatment applies?L3
• After the reporting period, Vrarnys's board considers selling its businesses in the face of difficulties, but an investor has made a firm recapitalisation offer that management considers realistic. No decision to cease trading is taken. What should be concluded on the basis of preparation?L4
• Vrascade's only plant, uninsured, is destroyed by fire in February. Lacking the means to rebuild it, management concludes before authorisation that it has no realistic alternative but to cease trading. The accountant proposes simple disclosure of the fire. What is the answer?L4
• In January, Vrondade lost its only industrial customer; two rescue options are being studied, with no commitment. The board must authorise the accounts at 31 December in ten days. Write the note on whether the going concern assumption is appropriate.L4
• Between the reporting date and authorisation, Vrovac suffers a long strike, the termination of a credit line and a fall in orders. Write a note identifying the factors that require going concern to be reconsidered and the disclosures to consider.L3
• In February, Vrunix's management decides to close one of its two businesses, the second, profitable one being continued. A director argues that the accounts can no longer be prepared on a going concern basis. Write a reasoned reply.L4