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You are auditing the financial statements of Special Ltd for the year ended 30 June...

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Accounting

You are auditing the financial statements of Special Ltd for the year ended 30 June 2012.In the course of your investigations, you discover the following transactions that occurred after the end of the reporting period but which appear to relate to 30 June 2012: The allowance for doubtful debts does not include amounts owing from a customer who went bankrupt shortly before the end of the reporting period. The customers balance outstanding is $ 89 120. On 1 August 2012, there was a fire in the companys warehouse. Loss of inventory was covered by insurance but there was significant disruption to the flow of production. The financial effects of the disruption are estimated to be $20,000 and are not covered by insurance. Required: a) Classify each error as material or immaterial. Detail your reasons for each classification. (Net profit is $209,000 , TOTAL CURRENT ASSETS are $381,000, net assets are $500 000) b) Classify each item as either an adjusting or a non-adjusting event after the end of the reporting period. Give reasons for your answers.

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