- July 17, 2022 at 3:12 am #660693jermy01Participant
- Topics: 49
- Replies: 29
The financial statements of Overexposure Co for the year ended 31 December 20X1 are to be approved on 31 March 20X2. Before they are approved, the following events take place.
1 On 14 February 20X2 the directors took the strategic decision to sell their investment in Quebec Co despite the fact that this investment generated material revenues.
2 On 15 March 20X2, a fire occurred in the eastern branch factory which destroyed a material amount of inventory. It is estimated that it will cost $505,000 to repair the significant damage done to the factory.
3 On 17 March 20X2, a customer of Overexposure Co went into liquidation. Overexposure has been advised that it is unlikely to receive payment for any of the outstanding balances owed by the customer at the year end.
How should these events reflected in the financial statements at 31 December 20X1?
Adjust Disclose Do nothing
A 3 2, 3 1
B 2, 3 1 –
C 3 1, 2 –
D 2 3, 1 –
The answer is C
Can you please explain the statement 1? ?July 17, 2022 at 10:11 am #660707John MoffatKeymaster
- Topics: 57
- Replies: 51543
The decision to sell their investment was not made until after the year end. Therefore the investment still existed as at the year end and is not an adjusting event.
However it is material and therefore is a non-adjusting event and requires disclosure.
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