ABC Ltd, an engineering company, makes up its financial statements to 31 March in each year. The financial statements for the year ended 31 March 2010 showed revenue of $30 million and profit of $4 million. Before the authorization of financial statements for issue by the board of directors on 30 June 2009, the following events took place:
1. The financial statements of DEF Ltd for the year ended 28 February 2010 were received, which indicated a significant deterioration in the companyâ??s financial position. ABC Ltd bought shares in DEF Ltd some years ago and this purchase was included in unlisted investments at its cost of $1 million. The financial statements received indicated that this investment was now worth only $500,000.
2. There was a fire at the companyâ??s warehouse on 30April 2010 when all of the companyâ??s inventories to the value of $5 million were destroyed. The investors in the warehouse were under-insured by 50%.
3. On 31 March 2010 a provision was made of $600,000 in respect of any remedial work required on plant supplied and installed at a customerâ??s premises on 26 March 2010. No remedial work had been carried out. On 1 May 2010 the customer confirmed acceptance of the plant, accordingly no further liability would be involved.
4. It was announced on 1 June 2010 that companyâ??s design for tank cleaning equipment had been approved by the major oil companies and this could result in an increase in the annual revenue of some $10 million with a relative effect on profit.
State, giving your reasons, how these events should be dealt with in the companyâ??s financial statement for the year ended 31 March 2010 in order to comply with the requirements of HKAS 10 â?" Events after the Reporting Period© BrainMass Inc. brainmass.com April 3, 2020, 9:57 pm ad1c9bdddf
1. The financial statements of DEF Ltd for the year ended 28 February 2010 were received, which indicated a significant deterioration in the company's financial position. ABC Ltd bought shares in DEF Ltd some years ago and this purchase was included in unlisted investments at its cost of $1 million. The financial statements received indicated that this investment was now worth only $500,000.
This is evidence that an asset value was significantly changed. The deterioration occurred prior to year end (even though they found out after year end). Here is the quote from HKAS 10:
"the receipt of information after the balance sheet date reporting period
indicating that an asset was impaired at the balance sheet date end of ...
Your tutorial is 232 words and a reference and discusses how to handle each of the four events described per Hong Kong HKAS 10 (not IFRS or US GAAP). One requires an adjusting entry, one requires disclosure, one requires no action and the fourth requires disclosure if there is a commitment.