Question

Blenkinsop Ltd has prepared its financial statements for the year ended 30th June 2019. The following events have taken place.

(a) On 28th July 2019, during a cyclone, flooding took place which damaged a warehouse. As a result of the flood inventory with a cost of $472,800 was destroyed. The warehouse equipment will require a major repair which will cost $725,000.

(b) On 12th August 2019, Grouse Ltd, which was a large customer of Blenkinsop Ltd, announced that it was in future going to source all of its material from an offshore supplier in Thailand. Grouse Ltd currently had a zero balance in accounts receivable.

(c) On 18th August 2019, on the advice of its lawyers, Blenkinsop Ltd settled a negligence claim which had arisen when a customer sued the company for damages. Thisarose from injuries suffered when one of Blenkinsop Ltd’s employees had crushed theirfoot with a forklift truck. The incident took place at the Darwin distribution hub on 15thMarch 2019.

(d) On 30th June 2019, Dastardly Ltd owed Blenkinsop Ltd $329,648. On 14th July 2019,Blenkinsop Ltd received a letter from Dastardly Ltd’s administrator that the company had become insolvent. Blenkinsop Ltd stopped all trading at the end of April 2019.

Required:

Describe, giving detailed explanations and references to the appropriate accounting standard where relevant, how Blenkinsop Ltd should treat the above events when completing the financial statements for the year ended 30th June 2019.

Answer 1

(a) On 28th July 2019, during a cyclone, flooding took place which damaged a warehouse. As a result of the flood inventory with a cost of $472,800 was destroyed. The warehouse equipment will require a major repair which will cost $725,000.	As per IAS 10, it is a NON ADJUSTING EVENT since it arose after the end of reporting period. It does not indicate that asset was impaired. Hence, the financial statements need not be adjusted. BUT since it is a MATERIAL non adjusting event, a disclosure about this event shall be made
(b) On 12th August 2019, Grouse Ltd, which was a large customer of Blenkinsop Ltd, announced that it was in future going to source all of its material from an offshore supplier in Thailand. Grouse Ltd currently had a zero balance in accounts receivable.	Nothing is required in respect of such an event
(c) On 18th August 2019, on the advice of its lawyers, Blenkinsop Ltd settled a negligence claim which had arisen when a customer sued the company for damages. Thisarose from injuries suffered when one of Blenkinsop Ltd’s employees had crushed theirfoot with a forklift truck. The incident took place at the Darwin distribution hub on 15thMarch 2019.	If the event that triggered the lawsuit occurs before the Balance sheet date and the settlement takes plcae post the Balance Sheet date then an adjustment in the financial statements is required to match the contingent loss amount.
(d) On 30th June 2019, Dastardly Ltd owed Blenkinsop Ltd $329,648. On 14th July 2019,Blenkinsop Ltd received a letter from Dastardly Ltd’s administrator that the company had become insolvent. Blenkinsop Ltd stopped all trading at the end of April 2019.	Declaration of insolvency by a Debtor that was outstanding for a long time indiactes it existed on the balance sheet date, so an adjustment is required. It is an adjusting event and balance of receivables must be reduced and bad debt must be recorded