IFRS 5
• The issue here is whether the closure of the division should be accounted for as a discontinued operation under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. A discontinued operation is defined as ‘a component of an entity that either has been disposed of or is classified as held for sale and:
a) represents a separate major line of business or geographical area of operations, or
b) is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or
c) is a subsidiary acquired exclusively with a view to resale.’
• As the discontinued operation has not been disposed of at the year end, it can only be classified as discontinued in the 2018 financial statements if it meets the definition of ‘held for sale’. Disposal groups are classified as held for sale if ‘their carrying amount will be recovered principally through a sales transaction rather than through continuing use’.
• This is not the case here as most of the assets are being redeployed elsewhere in the business.
• The small assets could potentially be classified as held for sale if all the relevant criteria, but not as a discontinued operation.

IAS 37
• Provision should be made for a redundancy costs if a constructive obligation exists at the year end. This appears to be the case as, assuming a detailed formal plan for the restructuring has been made, and the entity has raised a valid expectation in those
affected that the restructuring will be carried out by notifying them of the redundancy before the year end.

IAS 10
• As the annual financial statements were not scheduled to be released until after the closure of the division, the closure should be disclosed as a non-adjusting event after the reporting period due to its significance to the business (it is a separate operating
segment).                                                                                                        (3 points for 6 marks)

• IAS 10 (Events after the Reporting Period) is the applicable accounting standard. IAS 10 outlines that an “event after the reporting period” is an event which occurs between the end of the reporting period and the date that the financial statements are approved.
• The standard differentiates between adjusting and non-adjusting events. Adjusting events provide further evidence on a condition that existed at the reporting date. Adjusting events must be adjusted in the financial statements.
• Non-adjusting events are events that are indicative of conditions that arose after the reporting date. No adjustments are made for non-adjusting events. The flood occurred on the 3rd January 2019. The condition (the flood and damage to the inventory) did not exist at the reporting date of 31st December 2018. Therefore, the event is a non-adjusting event and Nabdam does not have to adjust the 2018 financial statements for the GH¢650,000 inventory loss.
• However, IAS 10, states that if the event is material then the reporting entity must disclose the nature of the event and an estimate of its financial effect. Therefore, as the inventory loss is material, Nabdam would have to make a disclosure describing the nature of the event (a flood affecting a distribution warehouse) and an estimate of the financial effect of the event (GH¢650,000 damage to inventory) in its 2018 financial statements.
  *Identification of IAS 10 – 1 mark
  *Explanation of the treatment in IAS 10 – 1 mark
  *Treatment of as a non-adjusting event – 1 mark
  *Disclosure of the nature and effect in the financial statement – 1 mark

i) Enactment by the government of a revised tax rate affecting the amount of the settlement of the deferred tax liability included in the financial statements. Non-adjusting event (IAS 10 para 22(h)) – rates enacted after the year end do not meet
the definition of a liability at the year end.

ii) A share split in respect of the earnings per share calculation

Adjusting event in respect of the earnings per share calculation (IAS 33 para 64) – although a non-adjusting event for the statement of financial position, if a share split occurs before the financial statements are issued to shareholders, earnings per share is adjusted as it would otherwise be misleading as the shareholders’ shareholdings have been diluted before they receive the financial statements.

iii) Criteria being met in order to classify non-current assets as held for sale. Non-adjusting event (IAS 10 para 22(c)) – IFRS 5 requires the criteria to be met at any given point in time so if the criteria are not met at the year end, the assets cannot be
classified as held for sale.
iv) A material, but not fundamental, error arising in the comparative figures. Adjusting event – all material errors are corrected retrospectively under IAS 8.

The earthquake occurred after the end of the accounting period. Assets and liabilities at 31 August 2014 were not affected. The earthquake is indicative of conditions that arose after the reporting period and does not give any further evidence in relation to assets and liabilities in existence at the reporting date. Therefore according to IAS 10 Events after the reporting period it will be classified as a non-adjusting event after the reporting period. The cost of the repairs will be charged to the Statement of comprehensive income in the period when it is incurred. Due to the impact on Akakpo Ltd, i.e. closure and loss of earnings for 6 months, the earthquake and an estimate of its effect will need to be disclosed by way of a note in Akakpo Ltd’s financial statements for the year ended 31 August 2015.

i) The fall in value relates to conditions that arose after the end of the reporting period. Therefore, the fall in value is a non-adjusting event after the reporting period.
Whilst the effect of the fraud may be an adjusting event in Asafo Ltd’s own financial statements, it is not an adjusting event for the value of the company’s shares on the stock market as that market value was based on all information available at that time (for example investors who purchased shares on 31 December at the market price on that date would not be able to make a claim against the previous owner when the fraud was discovered).
In accordance with IAS 10, which requires disclosure of material non-adjusting events after the reporting period, disclosure will be made of:

• the nature of the event
• the amount of the financial effect, ie fall in value.

ii) The announcement of plans to restructure creates a constructive obligation to do a restructuring. As a result, a restructuring provision will be recognised from that date, providing the IAS 37 criteria are met. However, no legal or constructive obligation existed to restructure at the 31 October 2015 year end and this is therefore a non-adjusting event after the reporting period.
In accordance with IAS 10, which requires disclosure of material non-adjusting events after the reporting period, disclosure will be made of:

• The nature of the event
• The amount of the financial effect, ie the expected restructuring costs.