(a) Post balance sheet events are those events, both favourable and unfavourable, which occur between the balance sheet date and the date on which the financial statements are approved by the board of directors.

Required:

Set out the treatment of events after the balance sheet date as laid down by IAS 10. Explain why this treatment is required by that IAS in order to ensure that financial statements show a true and fair view and give appropriate information to the shareholders and other legitimate users.

(b) You are the financial accountant of Tooting Engineering plc (a substantial private company). You are responsible for preparing the company’s financial statements and are at present finalising those for the year ended 31 December 20X6 for presentation to the board. The following items are material:

(i) You have recently discovered that during September and October 20X6, while you were away sick, the cashier took advantage of the weakened internal controls to defraud the company of £8,000.

(ii) At a board meeting on 3 Februar y 20X7 the directors agreed to purchase the business of Mr N. M. Patel (a small engineering business) for £45,000.

(iii) On 18 Januar y 20X7 the company made a 1 for 4 rights issue to existing ordinar y shareholders.

This involved the issue of 20,000 £1 ordinar y shares for a consideration of £25,000.

(iv) A customer, General Products Ltd, owed Tooting Engineering plc £16,000 on 31 December 20X6. This company had always been considered a good credit risk until on 15 Februar y 20X7 it went into voluntar y liquidation. Of the £16,000 debt, £12,000 is still outstanding and General Products Ltd is expected to pay approximately 25p in the pound on this £12,000.

Required:

Explain how you will treat items (i)–(iv) above in the financial statements and give a brief explanation of why you are adopting your proposed treatment.