70.2K

Verified Solution

Link Copied!

QUESTION TWO

$[15]$

ABR Limited recently issued anriual financial statements for the year ended $31$ December $2023.$ Below is a timeline of events leading up to the issue of the AFS.

$\backslash$table$[[,],[31$ December $2023,$Year end$],[11$ January $2024,],[21$ January $2024,\backslash$table$[[$Appproval by the Audit Comrrittee for presentation of financial$],[$statements to the Board of Directors for their approval.$]]],[26$ January $2024,$Public announcement of key financial results.$],[27$ January $2024,\backslash$table$[[$Approval by Board of Directors for the presentation of financial$],[$statements at the Annual General Meeting $($AGM$)$ for approval by the$],[$shareholders$.]]],[29$ January $2024,$Approval of financial statements by shareholders at the AGM.$],[\backslash$table$[[1,$January $2024]],$Issuance of copies of annual report to shareholders.$]]$

$2\mathrm{.}1.$ What is the last relevant date for the consideration of the Everts After Reporting Period of the issued financial statements taking into account the above timeline?

$2\mathrm{.}2.$ Crown Limited is currently issuing iss firancial statements for the year ended $30$ June $2023.$ The directors authorized the issue of financial statements to shareholders in a meeting on the $31$ August $2023.$

Consider the impact $($f any$)$ of the following events after the repocting period on the financial statements of Crown Limited for the year ended $30.$June $2023$ assurning they have not already been accounted for:

Please note: definitions and recognition criteria of the elements $($as per the Conceptual Framework$)$ do not need to be stated.

a$)$ A final dividend of $0\mathrm{.}5$ cents per share for the current year end was announced by the Board of Dire:tors, in a meeting held on $11$ July $2023.$

How should the final dividend be accounted for in the financial statements for the year ended $30$ June $2023?$

$(2)$

b$)$ On the $15$ June $2023,$ a customer had sued Crown Limited for damages that he claims to have suffered as a direct result of faulty goods supplied to him by Crown Limited.

On the $30$ June $2023,$ the litigation was in process and the Court had not reached a verdict. The Company's legal advisors suggested that the chance of an adverse opinion against Crown Limited was very low as the contract with the custormer explicitly states that the company shall not be liable to such claims. Consequently, no liability was recognized in the financial statements and neither was the contingency disclosed.

On $29$ August $2023,$ the court issued a verdict against Crown Limited and ordered the payment of damages amounting R$2\mathrm{.}5$ million to the claimant within $30$ days.

The CFO is of the view that the financial statements need not be adjusted berause the obligation to pay damages to the customer arose after the year end upon the decision of the court.

How should the liability for payment of damages be accounted for in the financial statements for the year ended $30$ June $2023?$

$(3)$

is the argument of the CFO valid and why?

$(3)$

c$)$ During July $2023,$ Crown Limited suffered losses on their sales. Crown Limited had to reduce the prices on their items due to an unexpected launch of similar $($but hetter$)$ products by their competitor on the $30$ June $2023.$

The CFO is of the viem that because the sales were transacted after the year end, the associated loss should be recognized in the next accounting period in line with the matching principle.

How should the decrease in inventory prices be accounted for in the financial statements for the year ended $30$ June $2023?$

$(2)$

d$)$ TMZ Limited who is currently a customer of Crown Lirnited, was declared bankrupt on the $6$ July $2023.$ This was due to a deteriorating liquidity position after the withdrawal of financial support by its bank over the past $3$ months.

Crown Limited was owed a material amount by TMZ Limited as at $30$ June $2023$ which will not be recoverable.

How should bankruptcy of the customer be accounted for in the financial statements for the year ended $30$ June $2023?$

$(2)$

e$)$ Crown Limited suffered great losses due to damages caused to its factories and other business premises. This was due to a major carthquake experienced on the $25$ July $2023$

Crown Limited's insurance policy does not cover the risk of loss arising from natural disasters. There are insufficient internal funds or the availability of external finance to rebuild the infrastructure necessary for it to resume its business operations. As a result, Crown Limited is unlikely to operate as a going concern in the foreseeable future.

How will the change in going concern status of Crown Limited be reflected in its financial statements for the year ended $30$ June $2023?$

$(3)$

END OF QUESTIONS

Answer & Explanation Solved by verified expert

See Answer