A. Briefly explain adjusting and non-adjusting events. B. The directors of Universal limited have asked you to

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Question:

A. Briefly explain adjusting and non-adjusting events.

B. The directors of Universal limited have asked you to provide a written explanation concerning the financial statements for the year ended December 31, 2021. You are required to refer to the relevant accounting standards to justify your answers and also to state whether the event in an adjusting event or a non-adjusting event.

i. Since December 31, 2019, the spread of COVID-19 has severely impacted many local economies around the globe. Universal limited was forced to cease or limit operations because of the measures taken to contain the spread of the virus, including travel bans, quarantines, social distancing, and closure of non-essential services

ii. The auditors have asked that Universal reduce the value of inventory – from the cost of $156,590M to $101,640M, which is the amount for which the inventory was sold in January 2022. Is this relevant to the balance sheet at year-end, and if so, why?

An employee was dismissed in early January. The former employee has now started legal proceedings for unfair dismissal. Our lawyers tell us that the company will probably lose the case and think that a reliable estimate of the damages awarded against us is $9M. As we employed this person at the financial year end, we feel that we should show the estimated amount of damages as an expense in the income statement and as a liability in the statement of financial position.