Question

What are the major types of subsequent events? Indicate how each of the following “subsequent events” would be reported.

1. Collection of a note written off in a prior period.
2. Issuance of a large preference share offering.
3. Acquisition of a company in a different industry.
4. Destruction of a major plant in a flood.
5. Death of the company’s chief executive officer (CEO).
6. Additional wage costs are associated with the settlement of a four-week strike.
7. Settlement of an income tax case at considerably more tax than anticipated at year-end.
8. Change in the product mix from consumer goods to industrial goods.

Short answer

Disclosure needs to be reported in (b), (c), and (d), in the subsequent events.

Step-by-step solution

Meaning Subsequent events

The subsequent event occurs after an extended period has elapsed, although the financial statements for that period have recently been issuedor are about to be issued. Such events may or may not require disclosure in an organization's financial explanation, depending on the circumstances.

Explaining types of subsequent events

A subsequent event occurs after the cut-off date for a company's fiscal year ends and sometime after the financial results are released. A corporation may be required to reveal the subsequent incident and its impact on its financial statements, depending on the event's nature.

The two types of subsequent events are follows

1. Those who influence the financial statements straightforwardlyought to be recognized in that through suitable adjustments.
2. Those which don't influence the financial statements straightforwardly and require no alteration of the account equalizations but whose impacts may be critical sufficient to be disclosed with suitable figures or estimates shown.