Question

Jonas Worth is the engagement partner for the financial report audit of Caufield Ltd for the year ended 31 December, 20X7. The following material events or transactions have come to Wood's attention before he is scheduled to issue his report on 28 February, 20X8. a) On 3 January, 20X8, Caufield Ltd received a shipment of raw materials from korea. The materials had been ordered in October 20X7, and shipped FOB shipping point in November 20X7 (2.5 marks). (50 -80 words) b) On 15 January, 20X8, the company settled and paid a personal injury claim of a former employee as the result of an accident that occurred in March 20X0. The company had not previously recorded a liability for the claim (2.5 marks). (50 -80 words) c) On 25 January, 20X8, the company agreed to purchase for cash the outstanding shares of La Trobe Electrical Ltd. The acquisition is likely to double the sales volume of Caufield Ltd (50 -80 words) d) On 1 February, 20X8, a plant owned by Caufield Ltd was damaged by a flood, resulting in an uninsured loss of inventory (50 -80 words). Please provide reference also.

Answer 1

a) Material Received dated 3rd Jaunary post to balance sheet date, which was ordered in the month of October 20x7 to be shown as invenotry as "Goods in Transit" as at December 31, 20x7 and liabilites to be booked in the books of accounts.

b) Ist of all we have to check the company accounting policy for the claims, if in the accounitng policy it is mentioned that all claimes will booked in the year of sattlement in that case compnay can book the expeses otherwise the same is to be treated as prior period expenses and to be adjusted with the year ended 20x0.

c) Entering in to major contract should be shown as Capital committment and purchase agreement to be shown as disclosure in the notes to accounts only.

d) Plant demaged by flood:- events took place after balance sheet and the same should be disclosed in the balance sheet.no impact of this should be given as at December 20x8 as this is non adjusted event.