Reference no: EM132975417

The annual audit of the accounting records and draft financial statements of Color Ltd as at 30 June 2021 revealed the following information:

1. Depreciation expense for a plant was recorded at $5,000 per month since it was purchased on 1 January 2021. An annual check on 15 July 2021 reveals that the depreciation expense was understated by $500 per month.

2. Brush Ltd, one of the main customers of Color Ltd, is facing financial difficulty and is at the risk of liquidation. For the period ending 30 June 2021, the transaction between Brush Ltd and Color Ltd amounted to $300,000 and the unsettled amount at the reporting date is $50,000. The auditor raised his concern about this issue on 28 July 2021.

3. An annual general meeting held on 20 July 2021 has endorsed a dividend payment of 20 cents per share for all outstanding ordinary shares. The payment of $40,000 will be paid out in August 2021.

Required:

Problem 1: Classify the events into adjusting and non-adjusting events after the end of the reporting period, justifying your choice. Provide the accounting treatments based on the classification. All amounts are considered material.