Lily Ltd finalised their financial statements for the year ended 31 March 2020 and authorised them for issue on 28 July 2020. The new managing director is unsure about the treatment of the following material events and has asked for your professional advice.

(i) 6 April 2020 – The directors declared a final dividend for the year ended 31 March 2020 of 8 cents per share. The total dividend payable was $340 000.

(ii) 1 May 2020 – At the 31 March 2020 balance date, the general ledger inventory account included items of inventory measured at a net realisable amount of $200 000; this resulted in an inventory write-down expense of $38 000. On 1 May 2020, these items of inventory were sold for $218 000.

(iii) 12 May 2020 – Cough Ltd, a significant supplier of Lily Ltd, initiated legal proceedings against Lily Ltd (for a breach of contract) before the 31 March 2020 balance date. A provision for $200 000 was recognised at balance date after Lily Ltd sought legal advice. The court decision, delivered on 12 May 2020, decreed that Lily Ltd had to pay damages of

$223 000 to Cough Ltd.

(iv) 15 May 2020 – Sneeze Ltd, a supplier of Lily Ltd, initiated legal proceedings against Lily Ltd (for a breach of contract) before the 31 March 2020 balance date. A contingent liability for $50 000 was disclosed in the notes after Lily Ltd sought legal advice. The court decision, delivered on 15 May 2020, decreed that Lily Ltd had to pay damages of $45 000 to Sneeze Ltd.

(v) 27 May 2020 - Facemask Ltd, a supplier of Lily Ltd, initiated legal proceedings against Lily Ltd, for a breach of contract that occurred on 4 May 2020. Lily Ltd sought legal advice and were told, on 6 July 2020, that there was a high possibility that damages of $23 000 would be payable to Facemask Ltd.

(vi) 20 June 2020 – An investment of Lily Ltd, consisting of 90 000 shares, was measured at the balance date fair value of $3.30 per share. The shares are now listed on the stock exchange at $3.70 per share.

Required:

Prepare a professional report for the managing director of Lily Ltd to explain the correct treatment of the above events according to the requirements of NZ IAS 10 Events after the Reporting Period.

Answer rating: 100% (QA)

This memorandum consists of accounting assessment and conclussion on the accounting matters raised 1 Directors declared a final dividend IFRS provides ... View the full answer