Question 9

Question 3 part (i)7.5 marks

Consider each of the following independent material events. In each case the:

balance date is June 30 2019.

financial report audit was signed on 12 August 2019.

financial report and the audit report was mailed to members on 20 August 2019.

Event 1:

On 10 August you discover that a debtor of your client, LMD Ltd, went into liquidation on 7 August. The debtor was reported as owing $475,000 at balance date. A specific provision was raised of $300,000 in April 2019. The preliminary information indicates that the likely payment to unsecured creditors is likely to be zero.

Event 2:

A cyclone has damaged to the warehouse of your client FNQ Ltd on July 4 2019. Inventory worth $2.4 million was destroyed. The directors believe that only around one third of the value will be recovered from insurers.

Event 3:

The same facts as in 2, but the insurance company decides to replace all the inventory. The new stock arrives on 31 July 2019.

Required:For each of the above three (3) 'Events'identify your accounting treatment AND justify your response.

In the answer below, please write the letter followed by your answer.

Eg. (event 1) Your answer

(event 2) Your answer