If a significant event happens after the year is closed, should the statements be adjusted or is a note enough?
In January a customer went bankrupt, in February a fire broke out in the warehouse, and the annual statements have not yet been approved. Under NAS No. 16, which event changes the figures and which one is only disclosed in the notes?
The balance sheet is drawn up as at 31 December, but the statements are approved by the manager several weeks later. NAS No. 16 gives a separate rule for events that happen in this interval.
Key points
- Which period? The interval between the balance sheet date and the date the financial statements are approved for publication (paragraph 4). Events after the statements are approved fall outside the scope of this standard.
- Two types (paragraph 5): events that become known later about a condition that already existed at the balance sheet date, and events that did not exist at the balance sheet date and arose later.
- The first type changes the figures. If an event provides additional information for determining an amount at the balance sheet date, assets and liabilities are adjusted. The standard's own example: if a customer's insolvency is confirmed after the balance sheet date, an adjustment for the loss on the debt may be made (paragraph 21).
- The second type is only disclosed in the notes. If an event did not affect assets and liabilities at the balance sheet date but is significant, its nature is disclosed in the notes (paragraph 23). Otherwise a user of the statements may make a wrong decision.
- What goes in the note? The nature of the transaction and an estimate of its financial effect, or a statement that it cannot be estimated (paragraph 24).
- The most serious case. If a subsequent event shows that the organization has become insolvent, assets and liabilities are adjusted (paragraph 20). When the statements are approved, compliance with the going concern principle is also considered (paragraph 22).
- Who does it apply to? All legal entities except budget organizations, banks and non-bank credit organizations (paragraph 2).
Example: "Mohir Qurilish Mollari"
The balance sheet is drawn up as at 31 December, and the manager approves the statements on 25 February. Amounts are hypothetical.
| Date | Event | Type | What is done |
|---|---|---|---|
| 18 January | The customer "Ufq Savdo" was declared insolvent. On 31 December it owed 18 mln soum | Type 1: the debt was already uncollectible in December, now this has become known | An allowance is created as at the balance sheet date: Dt 9430 – Ct 4910, 18 mln soum (it is estimated that nothing will be recovered from the debt) |
| 7 February | Fire in the warehouse, building materials worth 40 mln soum burned | Type 2: on 31 December the goods were intact | Inventory in the balance sheet does not change. The note discloses the nature of the fire and the estimate of 40 mln soum. The loss is reflected in the new year's accounts |
| 3 March | A new contract was signed with a major partner | The statements were approved on 25 February | Outside the scope of NAS No. 16 |
Test yourself
5 questions on this topic: pick an option or reveal the answer.
At "Beshariq kulol" LLC, the credit turnover of 9010 for the reporting period was 120 000 000 soum, and 7 500 000 soum for returned finished products was collected on the debit of 9040 "Returns of goods (products) sold". There are no other entries. What amount is closed from 9010 to 9910 at period end?
The company paid a supplier an advance of 5,000,000 soums (4310). Now materials worth 15,000,000 soums excluding VAT have arrived from the supplier, VAT 12%. Which entry offsets the advance, and how much remains to be paid to the supplier after that?
"Arnasoy baliq" LLC, which works seasonally, accrued wages in winter to workers who did preparatory work for the next season. Under its accounting policy this cost is included in deferred expenses. Which journal entry is made?
"Uchko'prik sopol" LLC liquidated a worn-out firing kiln: initial cost 84,000,000 soums, depreciation accumulated in 0230 79,000,000 soums. After the initial cost has been transferred to 9210, how is the depreciation written off?
At the end of the reporting period, how is the amount accumulated in account 9410 "Selling expenses" closed under NAS No. 21?
Answered: 0 / 50 of 5 correct
All tests →See also
Sources
- NAS No. 16 "Events Occurring in Business Activities after the Balance Sheet Date and Unforeseen Circumstances", paragraphs 2, 4 and 5 · scope; definition of events after the balance sheet date; their two types
- NAS No. 16, paragraphs 19–24 (Chapter 5) · adjusting assets and liabilities or disclosure; insolvency; the example of a customer's insolvency; information disclosed in the notes
- NAS No. 21 "Chart of Accounts", paragraph 217 · the allowance for doubtful debts is recorded in 4910, 9430
- Example and amounts · compiled by the author, hypothetical