Question three [26 Marks] The following are for independent scenarios, which might require separate responses. Each...

 

Transcribed Image Text:

Question three [26 Marks] The following are for independent scenarios, which might require separate responses. Each may require a justification for the appropriate responses made in each of the situations. (i) Jamintel Limited has been sued for the disposal effluent in the nearby river. The matter if currently before the St. James Parish Court. However, as at December 31, 2021, management is not sure as whether the entity will win or lose the current court case. There are also not certain of what obligations the entity will face should it lose the matter in court. (ii) Septon Limited currently has a matter in the Supreme Court for wrongful dismissal of is prior chief executive office. The entity was apprised by its attorney in December 2021 that they is a strong possibility that the entity will lose the case and may face damages of about $225 million. (iii) Wellington Limited is currently conducting and audit of the year ended December 31, 2021. On January 20, 2022, the CFO discovered a massive fraud, which involves lapping of accounts receivables. On further investigation, it was ascertained that the accounting manager pocketed $100 million, which was paid by customers, but which were not applied to the customers' accounts in the subsidiary ledgers. Required: a. For each of the situations above, kindly indicate the appropriate treatment in the financial statements [ 6 marks] b. Prepare the relevant journal entries or entry where adjustments are required to entity's financial statement based on the scenarios above. [ 9 marks] c. Distinguish between ordinary negligence and fraud. [ 5 marks] d. State any three audit procedures relevant to the test of contingent liabilities. [ 6 marks] Question three [26 Marks] The following are for independent scenarios, which might require separate responses. Each may require a justification for the appropriate responses made in each of the situations. (i) Jamintel Limited has been sued for the disposal effluent in the nearby river. The matter if currently before the St. James Parish Court. However, as at December 31, 2021, management is not sure as whether the entity will win or lose the current court case. There are also not certain of what obligations the entity will face should it lose the matter in court. (ii) Septon Limited currently has a matter in the Supreme Court for wrongful dismissal of is prior chief executive office. The entity was apprised by its attorney in December 2021 that they is a strong possibility that the entity will lose the case and may face damages of about $225 million. (iii) Wellington Limited is currently conducting and audit of the year ended December 31, 2021. On January 20, 2022, the CFO discovered a massive fraud, which involves lapping of accounts receivables. On further investigation, it was ascertained that the accounting manager pocketed $100 million, which was paid by customers, but which were not applied to the customers' accounts in the subsidiary ledgers. Required: a. For each of the situations above, kindly indicate the appropriate treatment in the financial statements [ 6 marks] b. Prepare the relevant journal entries or entry where adjustments are required to entity's financial statement based on the scenarios above. [ 9 marks] c. Distinguish between ordinary negligence and fraud. [ 5 marks] d. State any three audit procedures relevant to the test of contingent liabilities. [ 6 marks]

Answer rating: 100% (QA)

The detailed answer for the above question is provided below a For Jamintel Limited the appropriate treatment in the financial statements would be to disclose the existence of the lawsuit and the pote... View the full answer