The following events occurred after the year end, but before the financial statements were authorised for issue:
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.
ii) A share split in respect of the earnings per share calculation.
iii) Criteria being met in order to classify non-current assets as held for sale.
iv) A material, but not fundamental, error arising in the comparative figures.
Required:
In accordance with IAS 10: Events after the reporting period, explain with justification whether each of the above is an adjusting or a non-adjusting event after the reporting period. (4 marks)
View Solution
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.