Reference no: EM132717251

Question - Saga Bhd's current year-end was 31st December 2017. Its financial statements were authorised for issue by its directors on 6th February 2018 and the annual general meeting will be held on 3rd March 2018. The following matters have been brought to your attention.

Required - Analyse the required treatment of the items below by Saga Bhd in its financial statement for the year ended 31st December 2017.

a) On 12th January 2018, a fire completely destroyed the company's largest warehouse and the inventories it contained. The carrying amounts of the warehouse and the inventories were RM10 million and RM6 million, respectively. It appears that the company has not updated the value of its insurance cover and only expect to be able to recover a maximum of RM9 million from its insurers. Alan Bhd trading operations have losses for some time to come.

b) A single class of inventories held at another warehouse was valued at its cost of RM460, 000 at 31st December 2017. In January 2017, 70% of the inventory was sold for RM280, 000 on which Alan Bhd's staff earned a commission of 15% as at 31st December 2017.

c) On 18th February 2017, the government announced tax changes which have the effect of increasing Saga Bhd's tax liability by RM650, 000 as at 31 December 2017.