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4ISTQ

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Intermediate Accounting (Kieso)
Found in: Page 1466

Short Answer

Under IFRS, share dividends declared after the statement of financial position date but before the end of the subsequent events period are:

a) accounted for similar to errors as a prior period adjustment.

b) adjusted subsequent events, because they are paid from prior year earnings.

c) not adjusted in the current year’s financial statements.

d) recognized on a prospective basis from the date of declaration

Option (c)

See the step by step solution

Step by Step Solution

Meaning Financial Statements

Financial statements are reports generated by a company's management to demonstrate the company's financial performance and position at a certain moment in time. A balance sheet, income statements, statement of owner's equity, and statement of cash flows are usually included in a general-purpose collection of financial statements.

Explaining the correct option (c)

International Financial Reporting Standards (IFRS) are financial reporting standards developed by the International Accounting Standards Board (IASB) and the IFRS Foundation. They were designed to give a unique worldwide script for business activities in order to provide financial reporting uniformity across organizations.

Any share dividends issued after the date of the statement of financial position or balance sheet but before the end of the subsequent event period are not adjusted in the current year's financial statements, according to IFRS.

Therefore option (c) is not adjusted in the current year’s financial statements is the correct option.

Explanation for incorrect options

a) Redrawing past period financial statements can be used to make prior period modifications. This is accomplished by changing the carrying values of any relevant assets or liabilities as of the first accounting period shown, with an offset to the retained earnings balance as of the same accounting period's beginning.

b) IAS 10 requires evaluation of events later through the date the financial statement is approved for issuance, but later through the date the financial statement is issued or ready to be issued for this statement events need to be evaluated.

c) Under IFRS, share dividends declared after the statement of financial position date but before the end of the subsequent events period are not adjusted in the current year’s financial statements and they also should not be recognized on a prospective basis from the date of declaration

Most popular questions for Business-studies Textbooks

Edna Millay Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Millay and the industry averages for firms of similar size are presented below.

Edna Millay

2017 Industry

2015

2016

2017

Averages

Current ratio

2.09

2.27

2.51

2.24

Quick ratio

1.15

1.12

1.19

1.22

Inventory turnover

2.40

2.18

2.02

3.50

Net sales to stockholders’ equity

2.71

2.80

2.99

2.85

Return on common stockholders’ equity

0.14

0.15

0.17

0.11

Total liabilities to stockholders’ equity

1.41

1.37

1.44

0.95

Millay is being reviewed by several entities whose interests vary, and the company’s financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Millay’s financial position.

Archibald MacLeish Bank. The bank is processing Millay’s application for a new 5-year term note. Archibald MacLeish has been Millay’s banker for several years but must reevaluate the company’s financial position for each major transaction.

Robert Penn Warren. A brokerage firm specializing in the stock of electronics firms that are sold over-the-counter, Robert Penn Warren must decide if it will include Millay in a new fund being established for sale to Robert Penn Warren’s clients.

Working Capital Management Committee. This is a committee of Millay’s management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company’s working capital position, comparing actual data against budgets, and recommending changes in strategy as needed.

Instructions

a) Describe the analytical use of each of the six ratios presented above.

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