Question

c. In accordance with IAS: 12 Income Taxes, deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences. Required: Explain temporary differences. (2 marks) d. Yompab Ltd is a listed manufacturing company which prepares its financial statements for the year ended 31 October, 2018 in accordance with IFRS. The financial statements are due to be authorized for issue on 15 January 2019. i. Yompab Ltd holds an investment in the shares of a listed company, Nanoni Ltd. During November 2018 there was a material fall in the value of Nanoni Ltd's shares. Analysts attribute the fall in value principally to a fraud dating back to December 2017 that was discovered by Nanoni Ltd's management and announced publicly in November 2018. ii. In December 2018, the directors of Yompab Ltd publicly announced a plan to reduce the workforce by 10% as a result of worsening economic conditions. Required: Discuss the effects of each of the above items on the financial statements of Ypmpab Ltd for the year ended 31 October 2018 in accordance with IAS 10 Events after the Reporting Period. (4 marks) e. After a wedding in 2018, ten people died, possibly as a result of food poisoning from products sold by Lambon Catering Services. Legal proceedings have commenced, seeking damages from Lambon Catering Services but it disputes liability. Up to the date of approval of the financial statements for the year to 31 December 2018, Lambon Catering Services lawyers advised that it is probable that it will not be found liable. However, when Lambon Catering Services prepares the financial statements for the year to 31 December 2019, its lawyers advice that, owing to developments in the case, it is probable that it will be found liable. Required: In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, what is the required accounting treatment? i. At 31 December 2018? ii. At 31 December 2019?

Answer 1

Answer (c)

Explain temporary differences (IAS-12 INCOME TAXES)

Temporary differences as per IAS-12 means the difference
between the amount carried down in the statement of financial
position (i.e normal financial statements) and its tax base
Tax Base:- the amount at which the assets & liabilities would be
recorded in a tax based balance sheet i. e financial statements for
purpose of tax authorities.

Answer: d (i)

the situation provided in this particular Instance fits into
the definition of adjusting Events. as per IAS-10
Adjusting Events are those Events which occur after balance sheet date
i.e report period, that provides further evidence of
condition that existed at the end of reporting period
and also indicates that going concern assumption wholly or
partially of the organisation is not appropriate.

Here in Yompad Ltd holds substantial amount of shares as investment in
Nanomi Ltd, and the material fall in their market price can
partially effect going concern assumption of Yom pad Ltd.
In the light of IAS-10 [Events after Reporting date: Adjust
the financial statement for Adjusting Events.

Answer d (ii)

the instance given in this part represents non-adjusting
Events
non-adjusting Events mean, An event after the reporting
period that is indicative of a condition that arose
after reporting period
In this particular Case Yompad Ltd decided to
reduce its workforce by 10% due to bad economic
conditions
Disclosures : Non adjusting events should be disclosed if
they are of such importance that non-disclosure would
effect the ability of users to make proper evaluations
& decisions.
It must require: a)nature of event, b) Its financial impact

Answer: (e)

this case study is based on IAS-37 Which deals with
provisions, contingent liabilities and contingent assets.
But this particular case is based upon contingent liabilities and provisions
as the dispute of liability for damages against lambon
Catering services is still pending against count.
A possible obligation depending upon Whether
some future uncertain event occurs is known as
contingent liability
At 31 December 2018 → Yom pad should disclose contingent liability as
footnote. it will not form part of its financial statements
At 31 December 2019 → Lawyers are" PROBABLE"
probable means (more likely to happen than not)
so, here Yompad Catering services should
create provision for such liability
TIP: "PROVISIONS ARE RECOGNISED, WHEN LIABILITIES ARE PROBABLE"