Question

QUESTION 2
Each of the following unrelated subsequent events took place at various audit clients of your firm:
1. A major design defect was discovered in the safety mechanisms of a number of panel presses manufactured and sold by your client PrintPress (Pty) Ltd. This will result in recalls and modifications having to be made. The directors are also of the opinion that a number of lawsuits may follow. All presses must be sold with a safety guarantee. (3)

2. At a meeting of the directors held 3 weeks after the financial year end 30 June 2017, a decision was taken to propose a dividend for the financial year 2017 of N$4.50 a share. The dividend must be approved at the AGM to be held on 1 August 2017. (3)
3. An explosion at your client’s premises shortly after year end resulted in the impairment of an expensive piece of manufacturing equipment. The directors took the decision to account for the impairment at 28 February 2017, the company’s financial year end. (3)
4. Legislation was passed which immediately lifted import restrictions on the type of product sold by your client XYZ Ltd. Within a short period, demand for your client’s product dropped as the market was flooded with cheap imports of a similar product from Taiwan. XYZ Ltd was forced to drop the selling price of its product drastically. (4)
5. The share price of Gold Ltd fell sharply on the NSE (Namibian Stock Exchange) declining by nearly 28% on the share price at 31 May 2017. At its financial year end, 31 May 2017, your client Silver Ltd, a manufacturing company held shares in Gold Ltd as a long term investment. (3)
6. Shortly after the financial year end, your client Bugs (Pty) Ltd, a large mining company, was advised by their lawyers that a group of 20 employees intend to bring a civil action against the company for failure to provide adequate safety precautions in the workplace. The group of 20 state that this has left them with impaired hearing. Although no details have been provided, eg: the amount of the claim, the directors of Bugs (Pty) Ltd that they will contest (go against) any action. (3)
7. King Engineers Ltd, a client which operates in the engineering industry with large equipment, was notified after balance sheet date that certain non-current assets on one site had been totally destroyed during drawn out strike action. Although the assets destroyed have been clearly identified, exact details of when they were destroyed have not been established. (3)
8. A major debtor of one of your clients, was declared insolvent after the company’s financial year end. Your client anticipated this and had included an amount equal to 50% pf the debt in the provision for doubtful debts at year end. Early estimates from the liquidator are that creditors will receive only 10% in the Namibian dollar if they are lucky. (3)

YOU ARE REQUIRED TO:
Indicate, giving reasons, how each of the above (1-8) should be treated, if at all, in the financial statements of the respective companies.

Answer 1

1. Company have to give the notes in the annual report regarding them. If the amount can be estimated and are probable than the provisions have to be made

2. dividend declared should be given effect in the statement of equity section of the report and notes regarding the same has to be provided

3. Company have to provide for the impairment. If there is revaluation gain than the impairment is to be first adjusted through it otherwise directly through profit and loss statement

4. there would be no special treatment. fall in price would be adjusted in the sales account. However a notes regarding the same can be given in the report.

***an expert here is allowed to answer initial 4 questions, please repost the remainig. Also requested to keep this in consideration for future postings. Thanks***