Question 5 Subsequent Event

The audit team completed the field work on 22 July 2020. The audit report was signed on 5 August by Charles Kirby. The financial statements were signed by the BoD on the same day, which was subsequently released to shareholders on 12 August 2020.

During the review of subsequent events, you noted the following material events:

1) Cook's Furniture Ltd has purchased a property in Adelaide Australia on 20 July 2020 for AUD 3,200,000 and intended to use it as a showroom. The company borrowed AUD 2,000,000 to finance the purchase. The company plans to take the opportunity of the current low interest rate to expand its property acquisitions.

2) The company applied for Wages Subsidy scheme on 4 April and was granted 70,000. On 7 August, the BoD received a letter from the government requesting the company to pay back the Wages Subsidy with interests citing the reason that the company did not qualify.

3) The company was experiencing delays in its supply chain from overseas suppliers from March to May 2020, which resulted longer lead times in filling customer orders. On 31 July, a customer filed a lawsuit against the company suing for damages of $300, 000. Because of the delay, this customer could not open business on time and suffered income loss.

REQUIRED:

For each of the above subsequent event:

a) Explain the potential impact on the 2020 financial statements.

b) Discuss audit procedures that may verify the potential impact on the 2020 financial statements.

3:02 L J M . Cut .ill 40% Cooks Furniture Fina...Final 30 June 2020 - Saved V A B D E F G IN Statement of Financial Position As at 30/06/2020 2020 2019 Note Draft Audited $000 $000 Assets 9 Cash and Cash Equivalents 9 14,514 18,293 10 Accounts Receivable 10 443 932 11 Inventory 11 15,039 18,088 12 Other financial assets 12 272 727 13 Prepaid Expenses 748 490 14 Total current assets 015 38,528 15 16 Property, Plant & Equipment 13 37,066 45,944 17 Intangible Assets 14 951 1,189 18 Total non-current assets 38,017 47,133 19 Total Assets 69,032 85,661 20 21 Liabilities 22 Borrowings 15 5,440 10,181 23 Trade creditors 16 4,478 5,789 24 Other creditors and accruals 2,514 3,040 25 Deferred revenue 17 10,529 13,199 26 Current tax payable 145 654 27 Provisions 18 1,362 1,477 28 Total Current Liabilities 468 34,339 29 30 Borrowings 15 8,025 6,650 31 Deferred revenue 17 68 32 Provisions 18 2,322 2,440 33 Deferred tax 76 400 34 Total Non Current Liabilities 10,491 9,490 35 Total Liabilities 34,958 43,829 36 Net Assets 34,073 41,832 37 Equity 38 Share capital 19 1,346 1,682 39 Reserves 212 718 40 Retained Earnings 32,516 39,432 41 Total Equity 34,073 41,832 42 43 44 45 46 47 48 49 50 O