Banksia Ltd is in the process of completing its financial reports for the period ended 30 June 2009 when it becomes public knowledge that company income tax rates are to be increased and that the increase is to apply retrospectively to the financial year just completed.AASB 110 requires what treatment for this item?
A) No disclosure is required because the information is publicly available.
B) The potential effect on the accounts should be disclosed in the notes to the financial statements.
C) If material, the financial statements should be adjusted to reflect the impact of the event.
D) An adjustment to the income statement should be made, but only note disclosure for the balance sheet since it is prepared as at the reporting date.
E) None of the given answers.

Question

Quizplus · Accepted Answer

AASB 110 requires that if an event occurs after the reporting date but before the financial statements are authorized for issue, and it provides evidence of conditions that existed at the reporting date, the financial statements should be adjusted to reflect the impact of the event. In this case, the increase in income tax rates is an adjusting event that arose after the reporting date but provides evidence of conditions existing as at the reporting date. Therefore, if the impact is material, the financial statements should be adjusted to reflect the increase in tax rates.

Banksia Ltd Is in the Process of Completing Its Financial