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23.3 In finalising the financial statements of a company for the year ended 30 June 20X4, which of the following material matters should be adjusted for?
1 A customer who owed $180,000 at the end of the reporting period went bankrupt in July 20X4.
2 The sale in August 20X4 for $400,000 of some inventory items valued in the statement of financial position at $500,000.
3 A factory with a value of $3,000,000 was seriously damaged by a fire in July 20X4. The factory was back in production by August 20X4 but its value was reduced to $2,000,000.
4 The company issued 1,000,000 ordinary shares in August 20X4.
Answer is 1 and 2 only.
Why 3 is not a non-adjusting material event. We should disclose it in notes.It is because at the year end of 30 June X4 the factory had not been damaged. It is therefore a non-adjusting event so we do not adjust the figures in the SOFP, but instead disclose it in the notes.
Have you watched my free lectures on this?
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