Question

Hi,
I have a general question in regards to after reporting day adjustments. I'm getting a bit confused as to what I have to do. For example, I have a provision or warranty that wasn't recognised on 30 june 2010 at the end of the reporting period and its discovered in Jan 2011 and is material. This adjustment relates only to the 2010 period and not any prior periods. I realise this is an adjusting entry, but I'm kind of confused about how to do this. Do I change the previous periods accounts or put a note in the previous period. Any help is appreciated and sorry if it's a stupid question.

Answer 1

According to accounting stamdard - 4 , any adjustments to previous year financials are made if the event is an adjusting event.

Am event becomes adjusting event when the condition actually exists as on balance aheet date and the further information received after the balance sheet strengthens that condition.

In case of adjusting event, the adjustments to be made to previous year financials in the opening of the cureent year financials and current year financials has to be proceeded with the adjusted values and clear disclosure of such adjustment to be made.

In case of non adjusting event, i.e., if no condition of such provision or guarantee or no information of such information or guarantee is available as on balance sheet date then such event has to be considered as current year transaction and hemce no adjustment is required to previous year financials in this case.

From the question given above, it seems like condition to create provision or guarantee or any information relating to such provision or guarantee exists as on the balance sheet date. Hence adjustments to be made to previois year financials in above said manner.