You are an accountant of GSM company ltd., a clothing store. After you have prepared the...

You are an accountant of GSM company ltd., a clothing store. After you have prepared the financial statements as at December 2011, you noticed the following items occurring before accounts are approved by the directors: The sale of Tshs.1,000,000 was made during the period from 31stDecember 2011 to the date the statements are approved by the directors. The purchase of Tshs.750,800 was done during the period from 31stDecember 2011 to the date the statements are approved by the directors. Expenses amounting to Tshs.180,000 was incurred during the period from 31stDecember 2011 to the date the statements are approved by the directors. A notification is received that a customer who owes the company Tshs.3,700,000 has been declared bankrupt on 17thJanuary 2012. A fire on 4thJanuary 2012 destroys all the inventories in the warehouse. A letter is received from the insurance company stating that it is unclear whether our company was actually insured for the loss of inventories in the warehouse. Which of the above items are relevant for adjusting and non-adjusting events?

Expert Solution

Any adjusting event is an event for which conditions already existed before period end but transaction actually happened once the accounts were approved while a non adjusting event is one whose conditions for occurrence did not exist before period end.

Sale of Tshs.1,000,000 - Non adjusting event as no concrete evidence regarding sales existed at balance sheet date

Purchase of Tshs.750,800 - Non adjusting event as no concrete evidence regarding purchases existed at balance sheet date

Expenses amounting to Tshs.180,000 - Non adjusting event as no concrete evidence regarding expenses existed at balance sheet date

Bankruptcy of a debtor owing Tshs.3,700,000 - This can be adjusting event if talks were going on initially (generally in cases of bankruptcy it is easily can be made out while seeing market conditions regarding credibility of person concerned) and as at balance sheet date there was a significant doubts over debtor's solvency hence this is adjusting event and this calls for adjustment in accounts

Fire on 4th January 2012 destroying inventory - Non adjusting event as no conditions existed which could potentially signal about happening of fire in future

ekkarill92 answered 2 hours ago

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