You are the auditor of Virgin Blue Limited, a diversified business entity. The reporting period of Virgin Blue Limited ended on 30 June 2020. You signed the auditor’s report on 25 August 2020 and the financial statements were issued on 5 September 2020. The following material events occurred or were discovered after 30 June 2020.

(A) Virgin Blue Limited Research Division department developed a new type of photocopy paper, and the directors believed that it would increase their sales volume significantly. As a result, they capitalised the development costs relating to the new photocopy paper. However, on 9 July 2020, the granting of the application for a patent for the photocopy paper was rejected because a competitor had registered a similar patent in June.

(B) Virgin Blue Limited has been involved in a legal dispute with a competitor for several years. The dispute relates to alleged breaches of copyright by Virgin Blue Limited. On 9 August, you discovered that Virgin Blue Limited had settled the legal action out of court on terms more favourable than expected.

(C) Virgin Blue Limited holds investments in several companies listed on the London stock exchange. Over the past three months, this exchange has been losing about 2 per cent of its value per month. On 13 August 2020, the exchange’s value drops by 29 per cent.

(D) Virgin Blue Limited has a bank loan that is conditional upon certain ratios being maintained at all times. On 10 September, you discovered that one of the ratios was breached for a 24-hour period on 7 September.

REQUIRED: 

For each of the events or transactions described above, outline the amendments, if any, required to the financial report and provide the reasons for the required action.

Answer rating: 100% (QA)

Answer a This is an adjusting subsequent event The underlying condition was already existing on year... View the full answer