[Anonymous]

How is loss of fire not a subsequent event that requires an adjustment?

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Some events provide evidence regarding conditions that did not exist on the balance sheet date, but arose subsequently and do not require an adjustment of the balance sheet. Assuming that the item is material, an example of a subsequent event that requires adjustment is:

A. sale of bonds.

B. loss from inventory fire.

C. stock splits.

D. loss on account receivable resulting from customer’s bankruptcy.

Answer D. The loss on account receivable resulting from a customer’s bankruptcy relates to an account that existed on the balance sheet date and an adjustment is needed.

FASB ASC 855-10 provides guidance as to subsequent events that require recognition:

An entity shall recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.

[Anonymous]

Loss of inventory from fire would be considered a subsequent event, but it would require disclosure, not adjustment, because it was not present on the date of the balance sheet

[Lidis]

Hi

Examples of situations that do not trigger an adjustment to the financial statements if they occur after the balance sheet date but before financial statements are issued or are available to be issued are:

• A business combination

• Changes in the value of assets due to changes in exchange rates

• Destruction of company assets

• Entering into a significant guarantee or commitment

• Sale of equity

• Settlement of a lawsuit where the events causing the lawsuit arose after the balance sheet date

[Author]

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