1. You are the trainee accountant for Pantas Berhad and you are preparing the financial statements for the year ended September 30, 2020. The financial statements are expected to be approved at the Annual General Meeting, which will take place on November 29 2020. Today's date is November 22, 2020. You have been informed of the following matters:

1. On October 14, 2020, the accountant discovered material fraud. The accounts payable ledger clerk had been diverting funds to a fictitious vendor bank account, created by the employee, which had been going on for the past six months. The employee was immediately terminated, legal proceedings were commenced against the employee, and the employee's final salary was withheld as partial reimbursement to the company.

2. On September 20, 2020, a customer initiated legal proceedings against the company in relation to a breach of contract. On September 29, 2020, the company's legal counsel informed the directors that the company was unlikely to be found liable; therefore, no provision has been made in the financial statements, but disclosure has been made as a contingent liability. On October 29, 2020, the court found the company liable on a technicality and now must pay damages in a significant amount.

3. On November 19, 2020, a customer stopped trading due to financial hardship who owed RM2500. Since the financial statements are needed for the November 22, 2020 board meeting, you have decided that because the amount is immaterial, no adjustment is required. The auditors have also confirmed that this amount is irrelevant to the draft financial statements.

For each of the three events above, you must discuss whether the financial statements require amendment.

2. Banang Bhd is reviewing certain events that have occurred since the year end December 31, 2020. The financial statements were authorized for issue on March 23, 2021. The following events are relevant to the financial statements for the year ended December 31, 2020:

(a) A few days before the directors of Banang Bhd are to approve the financial statements for the year ended December 31, 2020, Mr. Kelvin, the CFO of Banang Bhd, discovered that the general manager of his subsidiary, Soga Sdn Bhd , misappropriated cash of RM1.2 million, representing a significant amount of assets of Banang Bhd. Further investigation of the matter indicates that the money was stolen in January 2021.

(b) The board of directors of Banang Bhd has agreed to sell a subsidiary named Nira Sdn Bhd on January 22, 2021.

(c) Banang Bhd makes a 3% impairment provision on all its trade receivables. On January 16, 2021, a client, Senai Trading Enterprise, who owed the entity RM500,000, was placed under receivership. Suppose Senai Trading Enterprise was able to pay 50 sen for each ringgit owed.

(d) Makmur Sdn Bhd, a major customer of Relau Bhd, filed for bankruptcy on 23 February 2021. The outstanding trade receivable of Makumr Sdn Bhd is material and amounted to RM1.8 million as at 31 December 2020 It is highly unlikely that Banang Bhd will get anything back from Makmur Sdn Bhd as Banang Bhd is only a general creditor of Makmur Sdn Bhd.

(e) As of December 31, 2020, the book value of Banang Bhd's inventory was RM650,000 and the net realizable value was RM720,000. The inventory was sold after the end of the year, but before the publication was authorized of the financial statements, to RM 580,000.

(f) One of its production plants was damaged on 13 March 2021 due to fire, the recoverable amount was estimated at RM2.5 million and the book value was RM3 million.

(g) Banang Bhd proposed a final ordinary dividend of five per cent on February 15, 2021. 4

Required: Determine if the above is an adjusting or non-adjusting event. Explain your answer. What is the impact, if any, on Banang Bhd's financial statements for the year ended December 31, 2020?

3. As of October 31, 2020, AA Limited ("AA") was a defendant in a fatal accident lawsuit in connection with a product, Pro-K, which was sold to KK Bhd during 2020. AA purchased the product for financial purposes. of FF Company Limited ("FF"). AA lawyers warn that AA is very likely to lose the case with a loss of RM1 million. If AA loses the case, AA will in turn take legal action to claim the loss from the manufacturer of Pro-K. AA's lawyers also warn that AA is very likely to be able to recover RM1 million from the maker of Pro-K.

(a) Discuss the accounting treatment of the above event in AA's financial statements for the year ended October 31, 2020, taking into account the implications of events that occur after the balance sheet date.

(b) Would your answer to part (a) be different if the estimates of loss of RM1 million and recovery of RM1 million from the manufacturer of Pro-K were based entirely on newly available information received after the date balance sheet but before the financial statements were authorized for issue? Explain.

(c) Would your answer to part (a) be different if the fatal accident occurred after the balance sheet date? Explain.

Answer rating: 100% (QA)

1 Events and Amendments for Pantas Berhad a Material Fraud The material fraud involving the diversion of funds and subsequent legal proceedings represent a subsequent event that occurred after the bal... View the full answer