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1) “One of Boston Co’s largest customers, Cleveland Co, is experiencing financial difficulties”
Does this gives a clue the difficulties if customer appearing during the audit ( so bef the ye)?
2) “At the year end Cleveland Co owed Boston Co $100,000, against which Boston Co made a 5% specific allowance”
Does allowance made only if customer is facing financial difficulty?
3) “Shortly after the year end Cleveland Co paid $30,000 of the outstanding amount due but has since experienced further problems”
What does “but has since experienced further problems” reffer to?
Since ye or since after ye when he paid 30,000
4)“leading to their primary lender presenting a formal request that Cleveland Co be liquidated”
Could explain whats happening here?
I appreciate answering the q bit by bit so i can underatand this question clearly
Thanks v much
1) If a customer becomes insolvent or similar after the y/e you should always assume that the financial difficulties existed at the y/e regardless of whether or not the audit client was aware of the difficulties.
2) A specific allowance can be made for any amount that may be irrecoverable – it could just be a matter of a disputed invoice.
3) “Shortly after the year end Cleveland Co paid $30,000 of the outstanding amount due” … this couldn’t be expressed more clearly
“… but has since (i.e. after it paid this amount) [the customer] experienced further [financial] problems”
4) Cleveland’s bank or other lender is proposing to liquidate the company/have it wound up/declared insolvent [you should know these terms from F4 Law).
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