How to Treat Post-Reporting Date Events Under Ind AS 10

1. Determining whether post-reporting date events require adjustment or disclosure under Ind AS 10

Ind AS 10 “Events after the Reporting Period” assists in accounting and disclosures of events after the reporting period. These events may be either favourable or unfavourable. This standard deals with the event occurring between the reporting period and the date when the financial statements are approved by the board of directors in case of company and by the corresponding approving authority in case of any other entity. Ind AS 10 further classifies the events after the reporting date into “Adjusting Events” and “Non-Adjusting Events”.

Adjusting Events are those events which provide the evidence of conditions existing at the end of reporting period whereas Non-Adjusting events are those whose conditions of existence arise after the reporting period. This standard provides that amount recognized in the financial statements should be accounted for and adjusted in respect of the adjusting events and should not be adjusted for in respect of non-adjusting events. However, recognition of events as adjusting events or non-adjusting events and their corresponding accounting treatment as per Ind AS 10 becomes difficult in practical cases. Some of the practical cases along with examples in respect of events occurring after the reporting date are discussed below.

A. Impairment of Inventory

ABC Engineering Private Limitedis an Indian Company that manufactures and supply car accessories. The company has entered into contract with “DJ Cars Private Limited” for manufacturing of engine for one of its car named”creeza”. Hence, ABC Engineering commenced its operations and started supplying engine to DJ Cars. However, after the reporting date but before the approval of financial statements, the DJ Cars announced that due to adverse customer feedback, “creeza” will no longer be produced. After such announcement the engine lying in inventory of ABC Engineering will have no alternative use and hence needs to be scrapped. Thus, in respect of inventory lying with ABC Engineers, what shall be the accounting treatment as per Ind AS 10, after such announcement being made by the DJ Cars in following cases:

Case 1

ABC Engineering has manufactured huge quantities of engines and has accumulated the inventory more than the order.

The Net Realisable Value (NRV) of the inventory as on reporting date is based on the evidences available at the time of estimation. Thus, in respect of inventory, events occurring after reporting date are considered to the extent such events confirms the existence of such evidences at the reporting date. The high inventory level as on reporting date is an indication of low demand from the DJ Cars. Thus, the announcement after reporting period confirms the existence of condition on reporting date. Hence, it shall be treated as “Adjusting Event” and the inventory should be written down to NRV considering the impact of announcement.

Case 2

ABC Engineering has inventory equivalent to the orders on hand at the reporting date.

Where the inventory levels at the order on hand at reporting date, the announcement made by DJ Cars would be treated as “Non-Adjusting Event” and hence the inventory is not required to be written down after such announcement.

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