Question

Leopard Ltd's financial year ended on 30 June 2020. The following events occurred between the end of the reporting period and the date the directors of Leopard Ltd expect to authorise the financial statements for issue:

1. On 25 July 2020, directors proposed a final dividend of $180 000 which requires approval at the annual general meeting.
2. On 15 July 2020, the financial cost of inventory shipped from overseas is determined. The inventory was received in June 2020 and the cost was estimated for accounting purposes. The revised cost is $80 000 greater than the prior estimate.
3. A customer of Leopard Ltd, is declared insolvent on 16 August 2020 as the customer’s uninsured premises were destroyed by a cyclone. The customer owed Leopard Ltd $600 000 as at 30 June.
4. The government announced an increase in tax rates from 30 per cent to 33 per cent for the year commencing 1 July 2020 the deferred tax liability account is $250 000.

REQUIRED

For each of the above material after-reporting-period events, state the reason why an adjustment or disclosure may or may not be required in the 30 June 2020 financial statements. Assume the above events would not significantly affect the going-concern assumption for Leopard Ltd. You are not required to draft any financial statement notes or provide any journal entries for adjustments.

Answer 1

On 25th July, Proposed dividend

Dividend Proposed by the Board of directors is not an Adjusting events. As there is no further evidence of conditions that existed at the end of the reporting period as per IAS 10

Disclosure of such proposed dividend is necessary as it may affect the decision of the user.

On 15th July, Revision of Inventory Cost

Revision of Inventory, which was received within the end of the financial statement date is a non adjusting event as there was no further evidence of conditions that existed at the end of the reporting period as per IAS 10.

Disclosure of such change in estimate is necessary if such amount is material.

On 16th August, Customer becoming Insolvent

Customer becoming Insolvent at a subsequent date is a non adjusting event, as there is no evidence on or before 30 th june,2020 of customer becoming insolvent.

Disclosure of Such event is necessary if it is material.

Government increase of Tax rates

Government announcement of increase of tax rates from 30% to 33% is a non adjusting event as there is no no evidence on or before 30 th june,2020 of increasing tax rates.

There is a need of disclosing about this event as the deferred tax liability may increase as the tax rate got increased.