Question Management

Q Boots Ltd is finalising its financial statements for the reporting period ending 30 June 2015. On 20 September 2015, before the financial statements have been finalised and authorised for issue, the company's directors became aware of the following situations:

a) The company owns a factory in Sydney that was completely destroyed by a severe hail storm on 10 July 2015. The factory had a carrying amount in the draft financial statements of $600,000. The factory was insured for $600,000, and Boots Ltd expects to receive this money from the insurer in October 2015.

b) On 12 July 2015, the financial cost of inventory shipped from overseas is determined. The inventory was received in June 2015 and the cost was estimated for accounting purposes. The revised cost is $200,000 lower than the prior estimate.

c) On 15 July 2015, Smith Ltd, a major customer of Boots Ltd, indicated that it was bankrupt. At this date, Smith Ltd owed $45,000 to Boots Ltd. This amount was owed to Boots Ltd from a sale made to Smith Ltd in June 2015.

d) It is discovered, on 18 July 2015, that a divisional manager has been under-depreciating plant and equipment. The motivation of the manager was to maximise the division's profit figure in order to maximise his bonuses. The carrying amount of the relevant plant and equipment in Boots' draft financial statements is $2,500,000. An investigation by the company's internal audit division, presented to Boots' directors on 25 July 2015, suggests that the plant and equipment has a recoverable amount of $1,500,000.

Assume all amounts are material for financial statement purposes.

Required: With reference to AASB 110, explain whether the above events will be classified as either adjusting or non-adjusting events after the end of the reporting period, providing reasons for your decision. State the appropriate accounting treatment for each event in Boots Ltd's 2015 financial statements.

Question 2 [16 marks]

Sugar Ltd was incorporated on 1 July 2014. The following transactions and events occurred during the year ended 30 June 2015:

1 Aug 2014: Sugar Ltd makes an offer to the public for investors to subscribe for 10,000,000 shares, at an issue price of $3.00 per share, with $1.50 payable on application, $1.00 being payable within one month of allotment, and $0.50 payable on a call to be made at a later date. The issue is underwritten at a commission of $2,000.

31 Aug 2014: Applications close, with applications received for 9,500,000 shares.

2 Sep 2014: Shares are allotted, and the underwriter forwarded the application and allotment money due on the 500,000 shares less their commission.

2 Oct 2014: All allotment money is received.

30 Nov 2014: The call is made, with money due by 31 December 2014.

31 Dec 2014: All call money is received except for holders of 20,000 shares who fail to meet the call.

20 Jan 2015: The shares on which call money was not received are forfeited and sold as fully paid. An amount of $2.60 is received for each share sold. Costs of the forfeiture and reissue amount to $6,000, and are paid. The constitution does allow the refund of any balance in the forfeited shares account after reissue to former shareholders