Question 2 Romeo Creation Ltd draft financial statements show the profit before taxation for the year to 31 December 2007 as GHS 9 million. The board of directors is to authorize the financial statements for issue on 20 March 2008. A fire occurred at one of Romeo sites on 13 January 2008 with resulting damage costing GHS 7 million, only GHS 4 million of which is covered by insurance. The repairs will take place and be paid for in April 2008. The GHS 4 million claim from the insurance company will however be received on 14 February 2008. Taking account of these events in accordance with IAS10 Events after the reporting period, a) How should Romeo account for the above event? b) What should be Romeo's profit before taxation in its financial statements?
According to IAS 10" Events after reporting period" all the events after the balancesheet date but before it's authorizarion, whose effect Or evidences doesnot exists at the balancesheet date are called non adjusting events ". Effects of such events or transactions should not be given in the FS. Such events should be shown as a disclosure.
a. Fire occurred after balancesheet date is an non adjusting events as the effects or evidence of such events doesn't exists on the balance sheet date.
Hence the loss of 7 million by fire and insurance amount receivable will be only disclosed as a disclosure in the notes to accounts of the FS.
b. As such events have no effect on the FS hence profit before taxation for the year 31st Dec 2007 will still be GHS 9 million.
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