Assignment:
All workings, when appropriate, must be shown to substantiate your answers.
Question 1
Events after the reporting period
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.