Karingai Co Ltd has been experiencing cash flow difficulties and sought a long-term loan from a merchant bank to enable it to restructure its financing from short-term to long-term debt.The loan has been approved by the bank after reporting date and the funds are expected to be received before the time of completion of the accounts.How should this event be reported according to AASB 110?
A) If the loan is material and the effect on the future financial performance of the entity is significant, AASB 110 requires the directors to disclose the event in the Director's Report and incorporate it into the financial statements.
B) The directors are required to disclose the event in the Directors' Declaration.
C) No note disclosure is required in this case.
D) The even should be disclosed in a note, the fact that it occurred after reporting date and its financial effect on the company should be provided.

Question

Quizplus · Accepted Answer

AASB 110 requires that events that occur after the reporting date, but before issuance of the financial statements, should be disclosed in the notes to the financial statements, if they are material or if disclosure is necessary to prevent the financial statements from being misleading. In this case, as the loan is material and will have a significant effect on the future financial performance of the entity, it should be disclosed in a note, stating the fact that it occurred after reporting date and providing its financial effect on the company.

Karingai Co Ltd Has Been Experiencing Cash Flow Difficulties and Sought