Question
Maju Bhd has provided the following information concerning events occurring after the end of the reporting period. This information is to be used for the
Maju Bhd has provided the following information concerning events occurring after the end of the reporting period. This information is to be used for the preparation of the financial statements for the year ended 30 June 2017. On 17 July 2017, a firebomb destroyed four of the companys transport vehicles resulting in damages of RM400 000. Insurance will cover RM300 000 of the damages but payment of the insurance claim has been delayed by a police investigation. As a result of the loss of these vehicles, the companys delivery schedules have been severely disrupted. On 18 July 2017, the release of a far superior and cheaper product by a competitor caused a major decline in demand for product X made by Maju Bhd. In an effort to sell remaining stock of the product Maju Bhd has reduced its selling price to 50% of cost. Inventory on hand at 30 June 2017 was recorded at its cost of RM153 000. On 15 August 2017, the Department of Occupational Health and Safety charged the company over unsafe storage practices that resulted in the leakage of toxic materials into a local creek. The leakage occurred on 3 July 2017. If found to be negligent by the court, the company will have to pay a fine of RM350 000 plus legal and clean-up costs in excess of RM250 000. On 21 August 2017, the purchasing manager discovered that a batch of invoices relating to June inventory purchases had not been processed. The invoices totalled RM37 650. On 30 August 2017, the company issued a prospectus offering 3000 10% debentures of RM100 each for public subscription. The debentures are redeemable on 1 October 2020. Interest is payable annually in arrears. The debentures are secured by a floating charge over the companys assets. Assume all events and transactions are material.
Required: a) Classify the above events as either adjusting or non-adjusting events after the end of the reporting period. Justify your classification. [15 marks]
b) Based on your answer to requirement (a), prepare the necessary journal entries or note disclosures to comply with the requirements of MFRS 110.
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