QUESTION (25 marks)
The Fix (Pty) Ltd, is a clothing retailer with a 30 June financial year-end. The June 2023 financial year-end annual financial statements were presented to the board of directors on 18 August 2023 for authorisation for issue. You are the accountant of The Fix (Pty) Ltd. The following events have taken place since the reporting date:
Event 1: Flood damage
During July 2023 one of the branches was flooded. Damage amounted to R500 000 in total, of which R100 000 related to inventory and R400 000 to the building. The company’s insurance policy does not cover such an occurrence and the claim was repudiated by the insurance company. A contract was entered into with Damage Control (Pty) Ltd on 1 August 2023 to repair the damage at the branch at a cost of R410 000. The Fix (Pty) Ltd will use surplus cash funds to finance the repairs.
Event 2: Insolvent debtor
Fashion Fusion (Pty) Ltd, a customer of The Fix (Pty) Ltd, was placed in liquidation by its creditors on 15 July 2023. Fashion Fusion (Pty) Ltd owes The Fix (Pty) Ltd an amount of R120 000. The balance outstanding was included in the trade receivables balance of The Fix (Pty) Ltd at the reporting date. Fashion Fusion (Pty) Ltd’s liquidator notified all creditors on 10 August 2023 that the estimated liquidation dividend would be 30 cents in the rand.
Assume all amounts are material. An income tax rate of 27% is applicable.
REQUIRED:
a) Classify each of the events after the reporting date as either adjusting or non- adjusting events in accordance with IAS 10, Events after the reporting period. Event 1 – 1 mark
Event 2 – 1 mark (2 marks)
b) Briefly discuss, in terms of IAS 10 Events after the reporting period, the effect of each of the events on the annual financial statements of The Fix (Pty) Ltd’s 30 June 2023 financial year end so as to comply with the International Financial Reporting Standards.
Event 1 – 5 marks
Event 2 – 5 marks
(10 marks)
c) Provide an extract from the notes of the financial statements or update the annual financial statements (refer below) of The Fix (Pty) Ltd as at 30 June 2023, disclosing the results of the conclusions in (b) above so as to comply with the International Financial Reporting Standards, IAS 10 Events after the reporting period.
Event 1 – 6 marks
Event 2 – 5 marks
(11 marks) Communication and Presentation: 2 Marks
The below extracts have been provided to respond to part C where appropriate:
THE FIX PTY (LTD)
EXTRACT FROM THE STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2023
| Rand | |
| ASSETS | |
| Current Assets | |
| Trade receivables | 520 000 |
| EQUITY AND LIABILITIES | |
| Retained earnings | 1 040 000 |
| Current Liabilities | |
| South African Revenue Services | 410 400 |
|
THE FIX PTY (LTD) |
|
| EXTRACT FROM THE STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2023 |
|
| Rand | |
| Revenue | 2 500 000 |
| Other expenses | (980 000) |
| Profit before tax | 1 520 000 |
| Income tax expense | (410 400) |
| Profit for the year | 1 109 600 |
| Other comprehensive income | – |
| Total comprehensive income for the year | 1 109 600 |
Answers to Above Questions on Financial Reporting
Answer 1: The classification of each event as adjusting or non adjusting is performed as follows:
Get completed answers on the questions above on financial reporting from the best accounting assignment help South Africa experts.
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