Consequences of Stock Damage After the Reporting Date on NRV for Valuation Purposes
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- Last Updated on 12 February, 2024
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Ind AS 10, Events after the Reporting Period, states that there are two types of events that can occur after the reporting period: adjusting events, providing evidence of conditions existing at the end of the reporting period, and non-adjusting events, indicative of conditions emerging after the reporting period.
The events that provide evidence for the existence of conditions at the end of the reporting period are required to be adjusted in the amounts recognised in the financial statements whereas for non-adjusting event an entity shall not adjust the amounts recognised in its financial statements.
However, determining whether a condition persists in a specific scenario can pose challenges. In such instances, professional judgment becomes crucial for resolution. Consider, for instance, a fire breaking out after the reporting date but before the approval of financial statements by the board of directors, leading to partial damage to inventory and a subsequent reduction in its Net Realizable Value (NRV).
Given that inventory valuation is based on the lower of cost or NRV, the issue arises in classifying this event as an adjusting or non-adjusting event because it has now significantly impacted the NRV of the inventory, which had been previously assessed at the end of the reporting period.
This story discusses such consequences of stock damage after the reporting date on NRV by way of case study.
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