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IAS 10 - Events after the reporting period - TutnIQ
Table of contents X
  • Tricky issues: dividends and going concern

  • Dividends

    Dividends payable are only recognized as a liability once the dividend has been declared. This means that if the dividends are not declared at the end of the reporting period, no liability may be recognised. If dividends have been proposed during the period, but only declared after the reporting period, there is still no liability. Dividend information is disclosed per IAS 1 (Presentation of Financial Statements).

    Going concern

    The IFRS Conceptual Framework indicates that the financial statements are normally prepared on the assumption that the entity will continue in operation for the foreseeable future (i.e. the entity is a going concern).

    IAS 10 states that the financial statements, at the end of the reporting period, may not be prepared on the going concern basis if management decides, after the reporting period, either:

    • That it intends to liquidate the entity or to cease trading; or
    • That it has no realistic alternative but to do so.

    If the going concern basis of accounting is assessed to be inappropriate, IAS 10 requires a fundamental change in the basis of accounting (as opposed to simply adjusting the amounts prepared under the going concern basis).

    IAS 1 (Presentation of Financial Statements) specifies the required accounting treatment and disclosures in such circumstances.

  • Mikeville Traders Limited has a 31 December year-end.

    The directors plan to have a meeting to declare a dividend for the year during December 20X1, but due to the CFO going on vacation, reschedule the meeting to 5 January 20X2.

    On 5 January 20X2 the company declares a dividend.

    Can a liability for the dividend be recognized at 31 December 20X1?

    Please select the correct answer:

    out of points awarded.

  • Cement Garden Limited has a 31 December financial year-end. On 7 January 20X2, a major volcanic eruption destroyed the company's production facilities. As a result the company suspended trading operations. The company is not insured for volcanic eruptions and does not have sufficient cash reserves to rebuild the factory and resume operations. External finance is not available. Management have concluded that the company is unlikely to operate as a going concern in the foreseeable future.

    How will the change in going concern be reflected in the annual financial statements for the year ended 31 December 20X1, per IAS 10?

    Please select the correct answer:

    out of points awarded.

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