Question
In the following separate cases, answer the questions independently. 1. Inthe year 2018, a director was dismissed and he commenced an action against the company
In the following separate cases, answer the questions independently.
1. Inthe year 2018, a director was dismissed and he commenced an action against the company claiming substantial damages for wrongful dismissal. The company's lawyer advised that the ex-director was likely to succeed with his claim estimated to be $1,000,000. In2019, thiscase was still unsettled and the company has just found some new evidence showing that the possibility of success of the ex-director's claim waslower, around 30% as advised by the company's lawyer.
Required:
What wasthe accounting treatment for the claim for 2018and 2019? Justify your answer. Provide journal entries where applicable. Limit your answer to 50 .
2. Simple limited is preparing its financial statements for the year ended 31 December 2019. Before the authorization of financial statements for issue, the following material events took place:Limit your answer to 50 for (a) and (b) respectively.
(a)Simple Limited holds a portfolio of shares listed on the Hong Kong Stock Exchange as at the reporting date. The fair value of the investment portfolio of shares on the reporting date was $3.5 million.The value of such investments had deteriorated by 30% since the reporting date.
(b)Simple Limited carries its inventory at the lower of cost and net realizable value. On 20 January 2020, the company entered into an agreement to sell part of its inventory for $1 million. The cost of inventory as reported in its statement of financial position was $1.5 million.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started