Muff and Tuff Limited consists of a chain of muffin outlets that makes and sells muffins to
Question:
Muff and Tuff Limited consists of a chain of muffin outlets that makes and sells muffins to the public. The financial director is finalizing the preparation of the financial statements for the year ended 31 December 2017 and has identified the following issues for discussion in a meeting with the company’s IFRS consultant:
a) Costs of R100 000 estimated to be incurred for relocating a staff member, D. Young, from the company’s head office in Durban to Cape Town to set up shop and manage a new store. The staff member will physically relocate during July 2018.
b) Long-service leave, estimated to be R300 000, owing to employees in respect of past services.
c) Provision of R150 000 for the replacement of a machine. The replacement is required every four years and the machine was four years old as at 31 December 2017.
d) Damages awarded against Muff and Tuff Limited resulting from a court case decided on 22 December 2017. The judge has announced that the amount of damages will be set at a future date, expected to be in March 2018. Muff and Tuff Limited has received advice from its lawyers that the amount of the damages could be anything between R100 000 and R30 million.
e) An amount of R550 000 owing to Sugar works Limited for raw materials provided in December 2017. (7)
The company’s financial statements are authorized for issue on 24 February 2018.
Required:
Discuss how each of the above issues should be recognized and disclosed in the financial statements of Muff and Tuff Limited at 31 December 2017 with reference to International Financial Reporting Standards.
Auditing and Assurance Services A Systematic Approach
ISBN: 978-1259162343
9th edition
Authors: William Messier, Steven Glover, Douglas Prawitt