CASE STUDY

Case study 1: Events occurring after the end of the reporting period

The statement of financial position of ABC Ltd as at 30 June 2020 includes an

asset 'Debenture money receivable $500 000' and a liability 'Debentures $500 000'. Note12 to the accounts reveals that the issue of the debentures to a private investor was approved by the board of directors on 28 June 2020 but the debenture issue did not take place until 17 July 2020.

Comment on the accounting treatment of the debenture issue in accordance with the

requirements of AASB 110/IAS 10.

ANS:

Case study 2: Events after the reporting period

ABC Ltd has provided the following information concerning events occurring between the end of the reporting period and the date the accounts were authorised. This information is to be considered in the preparation of the financial statements for the

year ended 30 June 2020.

a) On 17 July 2020, a firebomb destroyed four of the company's transport vehicles resulting in damages of $400 000. Insurance will cover $300 000 of the damages but payment of the insurance claim has been delayed by a police investigation. As a result of the loss of these vehicles, the company's delivery schedules have been severely disrupted.

ANS:

b) On 18 July 2020, the release of a far superior and cheaper product by a competitor caused a major decline in demand for Product X made by ABC Ltd. In an effort to sell remaining stock of the product, ABC Ltd has reduced its selling price to 50% of cost. Inventories on hand at 30 June 2020 were recorded at their cost of $153 000.

Ans:

Dr Inventory write-off expense 76 500=50%153k

Cr Inventory 76 500

c) On 15 August 2020, the Department of Occupational Health and Safety charged the company over unsafe storage practices that resulted in the leakage of toxic materials into a local creek. The leakage occurred on 3 July 2020. If found to be negligent by the court, the company will have to pay a fine of $350 000 plus legal and clean-up costs in excess of $250 000.

Ans:

d) On 21 August 2020, the purchasing manager discovered that a batch of invoices relating to June inventories purchases had not been processed. The invoices totalled $37 650.

Dr Inventory 37 650

Cr Account payable 37 650

Ans:

e) On 30 August 2020, the company issued a prospectus offering 3000 10% debentures of $100 each for public subscription. The debentures are redeemable on 1 October 2023. Interest is payable annually in arrears. The debentures are secured by a floating charge over the company's assets.

Ans: