Question

You are auditing Lifetime Tours Ltd for the year ended 30 June 2018. The financial report will be approved and signed by the directors on 30 July 2018, with the auditor’s report signed on the same date. The audited financial report will be issued on 12 August 2018.

After 30 June 2018 the following information came to light:

1. On 1 July 2018, the government issued a travel warning to a number of African countries. Forty-five per cent of Lifetime Tours’ business comes from running adventure tours in the countries mentioned in the warning.

2. On 15 July 2018, one of Lifetime Tours’ clients, Jungle Adventures, went into liquidation. Jungle Adventures purchased travel packages in bulk. A letter from the liquidator dated 30 July 2018 indicated that creditors were likely to receive ‘$0.10 in the dollar’. At 30 June 2018, Jungle Adventures owed Lifetime Tours $1 245 285 and Lifetime Tours had provided for 10 per cent of the amount owed as a doubtful debt.

3. On 9 August 2018, a bus transporting a Lifetime Tours tour group in New Zealand crashed. Some passengers on board, including the Lifetime Tours guide, and the driver had minor injuries. Lifetime Tours is concerned about the negative publicity relating to the crash.

1. REQUIRED

For each situation above, assess the type of subsequent event and how each would impact Lifetime Tours’ financial report for the year ended 30 June 2018, if at all

Answer 1

Subsequent event is events accure after reporting date but before approvel of finacial statement by board/managment of company. In this case Lifetime Tours Ltd. has close it account that is reporting date is 30 June 2018 and management approve the finacial statement on 30 july 2018. Event which accure in this period are subsequent event for Lifetime Tours Ltd.

If the subsequent event has condition exist on reporting date then those event need to adjust in finacial statement also known as adjusting event.

On 1 July 2018, the government issued a travel warning to a number of African countries. Forty-five per cent of Lifetime Tours’ business comes from running adventure tours in the countries mentioned in the warning. in this case on reporting date condition does not exist so it is non adjusting event. company need not to provide in books but 45% revenue will affect this material so company must disclose in notes to accounts.

On 15 July 2018, one of Lifetime Tours’ clients, Jungle Adventures, went into liquidation. Jungle Adventures purchased travel packages in bulk. A letter from the liquidator dated 30 July 2018 indicated that creditors were likely to receive ‘$0.10 in the dollar’. At 30 June 2018, Jungle Adventures owed Lifetime Tours $1 245 285 and Lifetime Tours had provided for 10 per cent of the amount owed as a doubtful debt. if bankruptcy order pass after reporting date usually confirm that customer was credit impaired at the end of reporting period it is adjusting event so company need to provide in the books and reduce the debtor balance upto recoverable amount.

On 9 August 2018, a bus transporting a Lifetime Tours tour group in New Zealand crashed. Some passengers on board, including the Lifetime Tours guide, and the driver had minor injuries. Lifetime Tours is concerned about the negative publicity relating to the crash. This event would not consider as subsiquent event as it accure after approval of managment.