In: Accounting
Explain how the transactions below should be treated in the financial statements of Gidimadjor Catering Services in accordance to IAS 10; Events after the Reporting Period:
i. Gidimadjor Catering Services has an investment worth GH¢1 million in its financial statements at 31 December 2018. Due to the continuing recession, the investment reduced in value to GH¢900,000 by 15, January 2019. ii. On 8 January 2019, one of the accountants left Gidimadjor Catering Services suddenly. On further investigation, the company realized that this employee had been paying himself money from the bank account in relation to false rental invoices. The amount of the overpayment was found to be GH¢86,000. With the help of the police, the accountant was tracked down and repaid all of the money on 18 January 2019. iii. On 10 January 2019, Gidimadjor Catering Services sold some inventory for GH¢80,000. This inventory had been included in the year-end inventory count at cost of GH¢100,000.
iv. Gidimadjor Catering Services LTD sold a truck on 31 December 2018 for GH¢20,000. This truck had been purchased on 1 January 2013. On 31 December, a non-refundable deposit of GH¢15,000 was paid towards a new truck and a cheque was posted with the balancing payment of GH¢50,000. This cheque was not received and cashed by the seller until 4 January 2019.
As per IAS 10 , Events after the Reporting Period mean events that occur between the end date of the fiscal accounting period & the date when the Board members authorise the finalised financial statments for issue to outsiders. |
This standard also guides as to which of these events need to be adjusted in accounts or just-enough to be disclosed as footnotes to financial statements. |
Events that need to be adjusted in accounts---are those that provide more details about conditions that existed as at the end-date of the reporting period |
& |
Just-enough to be disclosed as footnotes ---- are those that happened newly, after the end-date of the reporting period |
That said, we shall apply the above concepts to the issues below: |
i. Gidimadjor Catering Services has an investment worth GH¢1 million in its financial statements at 31 December 2018. Due to the continuing recession, the investment reduced in value to GH¢900,000 by 15, January 2019. |
Here, both the investment & the recession had existed as at Dec 31, 2018.Also, the decrease in value is noted just after 15 days, within which the Board would not have authorised the year's accounts for issue. |
Hence, on these counts, this issue needs adjusting the accounts, before issue. The proportionate/relevant investment impairment must be provided , in the accounts. |
ii. On 8 January 2019, one of the accountants left Gidimadjor Catering Services suddenly. On further investigation, the company realized that this employee had been paying himself money from the bank account in relation to false rental invoices. The amount of the overpayment was found to be GH¢86,000. With the help of the police, the accountant was tracked down and repaid all of the money on 18 January 2019. |
As the money , fully recovered, belongs to the acounting year ended Dec 31, 2018, this issue needs adjusting the accounts of that year , only. |
Also the timing of finding out(Jan 8) & recovery (Jan 18) must be well before the Board authorising the year's accounts for issue. |
so, this is an event needing adjustment in accounts, that is, debiting cash & reversing rent expenses, for the period ended Dec. 31, 2018. |
iii. On 10 January 2019, Gidimadjor Catering Services sold some inventory for GH¢80,000. This inventory had been included in the year-end inventory count at cost of GH¢100,000. |
This is a normal operating activity for a business. This will be accounted as income in the subsequent year only. |
This will not qualify as Events after the Reporting Period, as discussed under IAS 10 |
iv. Gidimadjor Catering Services LTD sold a truck on 31 December 2018 for GH¢20,000. This truck had been purchased on 1 January 2013. On 31 December, a non-refundable deposit of GH¢15,000 was paid towards a new truck and a cheque was posted with the balancing payment of GH¢50,000. This cheque was not received and cashed by the seller until 4 January 2019. |
Looks like an exchange transaction, ie. Old truck had been exchanged for a new one.The seller had not encashed , but the transaction seems complete.Part -payment having been made, GCSL must record all the amounts paid as advances towards the new purchase, crediting the book-value sold -truck along with its accumulated depreciation(debit) and also the gain /loss on exchange. |
As the entire transaction belongs to the period ended Dec 31, 2018, the accounts would have recorded cash outflows.Only the gain/loss entry , removing the carrying value of the old asset must be made now, keeping the advances in the debit , instead of the value of the new truck. |