Adjusting events

Learning objectives

• Identify adjusting events (settlement of a court case, evidence of impairment, sale of inventories, fraud or error).L1, L2
• Calculate the adjustment to the amounts recognised (provision, write-down, net realisable value, tax effect) from the case data.L2, L3
• Record the adjusting entries at the end of the reporting period.L2, L3
• Analyse an ambiguous event to determine whether the condition existed at the end of the reporting period.L3, L4

Normative references

• IAS 10 §3Events after the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue. Two types are distinguished: those that provide evidence of conditions that existed at the end of the reporting period (adjusting events) and those that are indicative of conditions that arose after the reporting period (non-adjusting events).
• IAS 10 §8An entity adjusts the amounts recognised in its financial statements to reflect adjusting events after the reporting period.
• IAS 10 §9Examples of adjusting events: the settlement after the reporting period of a court case that confirms that the entity had a present obligation at the end of the reporting period (adjusting or recognising a provision under IAS 37 rather than merely disclosing a contingent liability); the receipt of information indicating that an asset was impaired at the end of the reporting period or that a previously recognised impairment loss needs to be adjusted, for example the bankruptcy of a customer after the reporting period or the sale of inventories after the reporting period giving evidence about their net realisable value; the determination after the reporting period of the cost of assets purchased, or the proceeds from assets sold, before the end of the reporting period; the determination after the reporting period of the amount of profit-sharing or bonus payments, if the entity had a present legal or constructive obligation at the end of the reporting period to make them; the discovery of fraud or errors that show that the financial statements are incorrect.

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

30 questions

• An entity adjusts the amounts recognised in its financial statements to reflect adjusting events after the reporting period.L1
• The settlement after the reporting period of a court case confirming a present obligation existing at the reporting date is dealt with by a note disclosure only.L1
• The discovery, before the accounts are authorised, of a fraud showing that the financial statements are incorrect is an adjusting event.L1
• Which of these events after the reporting period is an adjusting event?L1
• The amount of a profit-sharing bonus for the year just ended is determined after the reporting period. In which case is this determination an adjusting event?L2
• An adjusting event is identified in February 2026 for accounts with a 31 December 2025 year-end. Which amounts are adjusted?L2
• A machine bought in December 2025 has its final price set in January 2026, after its performance has been measured. How should this information be treated in the 2025 accounts?L2
• Which of these events, occurring before the accounts are authorised, are adjusting events?L2
• A customer of Plaurvian is declared bankrupt in February 2026. Which factors indicate that its position had already deteriorated at 31 December 2025?L3
• A customer of Gryrnot, in difficulty since autumn 2025, is declared bankrupt in February 2026. The receivable amounts to {receivable}; a loss allowance of {existing_allowance} is already recognised at 31 December 2025. The administrator announces a recovery of {recovery_rate} (case data). What additional amount should be recognised at 31 December 2025?L2
• At Grysore, no loss allowance ({existing_allowance}) was recognised on a receivable of {receivable} from a distributor that was falling into arrears before the reporting date. Its liquidation, ordered in January, points to a recovery of {recovery_rate} (case data). What allowance should be recognised at the reporting date?L2
• Grésine sold parts to a garage whose 2025 accounts already showed negative equity. The garage enters administration in March 2026, before the accounts are authorised; the plan provides for repayment of {recovery_rate} (case data). Receivable: {receivable}; existing allowance: {existing_allowance}. What additional amount at 31 December 2025?L3
• Gulbane holds {units} items of an end-of-life range at the reporting date, at a unit cost of {unit_cost}. In January, it sells them all at a unit price of {unit_sale_price}, with unit selling costs of {unit_selling_cost}. What amount should be recognised at the reporting date and what write-down?L2
• A batch of {units} industrial pumps, costing {unit_cost} each, is held in Jairnane's inventory at the reporting date; a design defect had been known since November. They are sold in February at {unit_sale_price} each, with selling costs of {unit_selling_cost} each. Determine the inventory amount and the write-down at the reporting date.L3
• Jaurvot had provided {provision_recorded} at 31 December 2025 for a commercial dispute. In February 2026, before authorisation, the dispute is settled for {settlement_amount}. The expense will be deductible when paid and the deferred tax asset is recoverable at a rate of {tax_rate} (case data). Calculate the additional provision and the net effect on 2025 profit.L3
• A company agreement requires Jylbix to pay its staff {share_rate} of its 2025 profit. That profit, finalised in February 2026 before the accounts are authorised, amounts to {profit_base}; an estimate of {accrued_amount} had been recognised at the reporting date. What additional amount should be recognised in 2025?L2
• In February, a court orders Metence to compensate a customer for a defective delivery made in November. The accountant merely describes a contingent liability in the notes to the accounts for the year ended 31 December. What is the error?L2
• In February 2026, Meurgence identifies an additional loss allowance on a receivable doubtful at 31 December 2025. It records it in its January 2026 books. What is the error?L2
• A customer of Milbouël, in arrears since the summer, is put into liquidation in February. The accountant immediately classifies the event as non-adjusting, 'since the liquidation comes later'. What is the error?L3
• Jyvian had recognised a provision of {provision_at_year_end} at 31 December for a dispute with a subcontractor. In January, before the accounts are authorised, a settlement agreement is signed for {settlement_amount}. Record the adjusting entry at 31 December.L2
• At 31 December, Karnenne had provided {provision_at_year_end} for a claim brought by a former distributor. The judgment handed down in February, before authorisation, orders it to pay {settlement_amount}. Record the adjusting entry.L2
• A customer of Keusence, insolvent since December, is liquidated in February with no assets (no recovery expected, case data). The receivable amounts to {receivable} and a loss allowance of {existing_allowance} already exists. Record the entry at 31 December.L3
• Fabric inventory from a past collection, at a cost of {inventory_cost} at 31 December, is sold in January by Koscenne for proceeds net of selling costs of {net_proceeds}. Record the entry at 31 December.L2
• In February 2026, before the 2025 accounts are authorised, Leulbia discovers that an employee embezzled {embezzled_amount} in 2025, disguising the payments as advances to fictitious suppliers. Record the correcting entry in the 2025 accounts.L3
• At 31 December, Maudade disclosed a contingent liability for pollution caused in October. In March, before authorisation, it agrees to pay {settlement_amount}, which confirms the obligation at the reporting date. The expense will be deductible when paid; deferred tax asset recoverable at a rate of {tax_rate} (case data). Record the entries.L3
• Naidenne sold a building in December 2025 with additional consideration depending on a technical audit. The audit, completed in February 2026 before authorisation, sets the final price. What should be done in the 2025 accounts?L2
• A customer of Neulvot, solvent and up to date with its payments at 31 December, sees its only plant destroyed by fire on 15 January and files for bankruptcy in February. How should the receivable be treated in Neulvot's accounts?L3
• At 31 December, Neumois holds phones of a model replaced by its manufacturer in November. In January, it sells them below cost. What should be concluded for the accounts at 31 December?L3
• Before its 2025 accounts are authorised, Neurgouël discovers two facts: the physical count at 31 December was inflated by a depot manager, and goods were stolen on 20 January 2026. Which treatment applies?L4
• A major customer of Plainot files for bankruptcy in February. It had been paying late since October, but its failure was hastened by the loss, in January, of its main contract. Write the analysis note on the treatment of the receivable in the accounts at 31 December.L4