Adjusting or non-adjusting events

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Reference no: EM132967191

The 30 June 2020 financial statements of ABC ltd have been prepared in draft form. However, the financial statements have not yet been printed and sent to shareholders. Subsequent to the end of the reporting period, the following events occured.

Required:

Classify the following events as either adjusting or non-adjusting events after the end of the reporting period. Justify your classification. Assume all amounts are material for financial statement purposes.

(a) A judgement is handed down in the Victorian Supreme Court on 15 July 2020 in relation to a 2019 product liability case brought by a customer against the company. This judgement renders the company liable for court costs and compensation totalling $240 000.

(b) On 14 July 2020, the Commonwealth government enacts legislation altering the company income tax rate from 39 per cent to 42 per cent for all income tax returns from 1 July 2020.

(c) On 28 July 2020, the company's country warehouse is destroyed by fire. The total carrying value of the warehouse, which was uninsured, is $350 000.

(d) On 2 August 2020, the cost of inventory shipped from overseas is determined. The inventory was received in June 2020 and the cost was first estimated for accounting purposes then. The revised cost is $900 000 greater than the prior estimates.

(e) On 16 July 2020 the company enters into a contract to purchase 25 per cent of the issued capital of a competitor XYZ Ltd for $750 000.

Reference no: EM132967191

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