（a) The objective of IAS 10 Events after the Reporting Period is to prescribe the treatmen

(a) The objective of IAS 10 Events after the Reporting Period is to prescribe the treatment of events that occur after an entity’s reporting period has ended.

Required:

Define the period to which IAS 10 relates and distinguish between adjusting and non-adjusting events.

(5 marks)

(b) Waxwork’s current year end is 31 March 2009. Its financial statements were authorised for issue by its directors on 6 May 2009 and the AGM (annual general meeting) will be held on 3 June 2009. The following matters have been brought to your attention:

(i) On 12 April 2009 a fire completely destroyed the company’s largest warehouse and the inventory it

contained. The carrying amounts of the warehouse and the inventory were $10 million and $6 million

respectively. It appears that the company has not updated the value of its insurance cover and only expects

to be able to recover a maximum of $9 million from its insurers. Waxwork’s trading operations have been

severely disrupted since the fire and it expects large trading losses for some time to come. (4 marks)

(ii) A single class of inventory held at another warehouse was valued at its cost of $460,000 at 31 March

2009. In April 2009 70% of this inventory was sold for $280,000 on which Waxworks’ sales staff earned

a commission of 15% of the selling price. (3 marks)

(iii) On 18 May 2009 the government announced tax changes which have the effect of increasing Waxwork’s

deferred tax liability by $650,000 as at 31 March 2009. (3 marks)

Required:

Explain the required treatment of the items (i) to (iii) by Waxwork in its financial statements for the year

ended 31 March 2009.

Note: assume all items are material and are independent of each other. (10 marks as indicated)