Reference no: EM132696681
Lombok Ltd is an Australian entity that makes canoes and associated equipment. The end of its financial period is 30 June 2018. It has compiled a set of draft financial statements, which indicate that its net assets are approximately $4 million and its after-tax profit for the year is $650,000. Before the financial statements are finalised, the following transactions and events come to light. Assume that each event or transaction is independent of the rest. Determine their treatment.
(a) On 30 July 2018 the directors recommend a final dividend of $2 per share.
(b) At a directors' meeting held in May 2018 it is decided that in late July the division that makes flotation devices will be closed, as the demand for such devices had fallen. The costs involved in closing down the division amount to $1.5 million.
(c) On 5 August 2018 the directors become aware that the oars it has been selling since mid-July 2018 tend to fall apart when placed in water for more than 30 minutes. These oars were purchased by Lombok Ltd on 10 July 2018. By 7 August 2018 there have already been claims made against the company by a number of people who were stranded at sea.
(d) Lombok Ltd's main customer, Eco-Friendly Leisure Company, is declared insolvent on 12 July 2018. Apparently it is declared insolvent because it has been unable to pay damages previously awarded against it. The damages relate to an incident in which tour participants were savaged by some rampaging emus. Eco-Friendly Tours owed Lombok Ltd $600,000 as at 30 June 2018.
(e) In July 2018 an out-of-court settlement has finally been reached with one of Lombok Ltd's material suppliers. Lombok Ltd took action against the supplier two years earlier. The supplier had sold Lombok Ltd canoe paints that tended to wash off when exposed to salt water. Lombok Ltd is expected to receive $1 million in damages.
Required:
Problem 1: Determine how and whether each of the events or transactions should be disclosed in the financial statements or accompanying notes of Lombok Ltd for the year ending 30 June 2018.