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Hi,
Why would the following be a non adjusting event.A company took delivery of a new machine from usa in the last week of the financial year. It was discovered almost immediately afterwards that the entity supplying the machine had filled for bankruptcy and would not be able to honour the warranties and repair contract on the new machine. Because the machine was so advanced, it was unlikely that any local entity could provide maintenance cover.
Hi,
What would we be adjusting for? We have the machine and it is in working order, so the fact that there is no warranty is not really relevant.
Thanks
Hi,
Thank you for your response.
We have paid for the warranty and i assume it was capitalised with the cost of asset ( since it covers more than one period) and would be written off to P & L over the no of years the warranty is for.So would we not do an adjustment to that amount which has been paid and capitalised in the books?Waiting for your kind response.?
Apologies. We will not but if it is covering 3 years, would we prepay/defer it and show it as an asset on BS. If we will then would we do an adjustment for that under the scensrio mentioned above?
Hi,
If we have prepaid for the warranty then it would be shown as a prepayment on the SFP. If we are no longer to receive the service due to the liquidation of the supplier then it would need to be written off.
Thanks
Excellent! I’m glad we both got to the answer. Keep up the hard work and let me know if you’ve any further questions.
Chris
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