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respctd sir,
thre was a question that were having 2 events,bith were after theyear end.year end was 21 april and frst evnt took place in 1 may.the evnt was that there was som problm in chemical used and were havng scrap value of .2 million and was purchased fr 1 milllion.
scnd ent took place in 31 may and it wsa half invntry lost in fire..
can i knw whch was adjusting and non adjsting event???Panda Co manufactures chemicals and has a factory and four offsite storage locations for finished goods.
Panda Co’s year end was 30 April 2013. The final audit is almost complete and the financial statements and
audit report are due to be signed next week. Revenue for the year is $55 million and profit before taxation is
$5·6 million.
The following two events have occurred subsequent to the year end. No amendments or disclosures have been
made in the financial statements.
Event 1 – Defective chemicals
Panda Co undertakes extensive quality control checks prior to despatch of any chemicals. Testing on 3 May 2013
found that a batch of chemicals produced in April was defective. The cost of this batch was $0·85 million. In its
current condition it can be sold at a scrap value of $0·1 million. The costs of correcting the defect are too
significant for Panda Co’s management to consider this an alternative option.
Event 2 – Explosion
An explosion occurred at the smallest of the four offsite storage locations on 20 May 2013. This resulted in some
damage to inventory and property, plant and equipment. Panda Co’s management have investigated the cause
of the explosion and believe that they are unlikely to be able to claim on their insurance. Management of
Panda Co has estimated that the value of damaged inventory and property, plant and equipment was
$0·9 million and it now has no scrap valueI’m only a self studying student, so my opinion could be incorrect! However, here is my understanding.
The first scenario requires adjustment in the statement, because evidence has been received indicating the cost of inventory before the year end, which is materially lower to what was entered before.
Regarding the explosion, this happened after the year end, and the inventory was fine prior to the year end. Therefore, no change in the statement is required. However, because of the materiality and seriousness of the explosion, a disclosure should be made.
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