Banksia Ltd is in the process of completing its financial reports for the period ended 30 June 2014 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.What treatment is required by AASB 110 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 statement of comprehensive income should be made, but only note disclosure for the statement of financial position since it is prepared as at the reporting date.

Question

Quizplus · Accepted Answer

According to AASB 110, if an event occurs after the reporting period but before the approval of the financial statements that provides additional information about the conditions that existed at the end of the reporting period, adjustments should be made to the financial statements to reflect the impact of the event, if material. In this case, the increase in income tax rates is a material event that occurred after the reporting period but before the approval of the financial statements. Therefore, the financial statements should be adjusted to reflect the impact of the event.

Banksia Ltd Is in the Process of Completing Its Financial