Montego Bay Distributors Limited (MBDL) is located at 10 Pimiento Way, Freeport, Montego Bay. The company is a local conglomerate. The entity is a subsidiary of the Kent Group of Companies. The company was formed on May 12, 1976, by Tony Kent who migrated from Ireland. The firm is listed on the junior stock exchange. Over the years the entity has always practiced good corporate social responsibility. Corporate social responsibility (CSR) is entrenched the by-laws as well as the organisational policies. Its corporate social responsibilities include cleaning the beaches, parks and historical building in Montego Bay. The entity has been doing this for the last ten years. Each year, the company spends on average J$100 million doing so. After which, it received various tax concessions from local as well as central government. As a result, last year, the mayor of Montego Bay presented MBDL with the keys to the city of Montego Bay at the annual Independence Day gala. At the gala last year, the companys chief executive officer (CFO) stated that he will increase the companys annual contribution by at least 20%. He indicated that the city and his firm have a wonderful partnership which he thinks will continue for the foreseeable future. Furthermore, in keeping with the organisational policies, MBDL is committed to corporate social responsibility. At the start of the year the CEO reaffirmed his position on CSR. In the local newspaper, he made a statement that MBDL will contribute H$125 million to the citys annual clean-up campaign. This was also ratified by the board of directors. The CEO went further and met with the mayor who initiated the campaign for the current period. However, during the year, the companys performances started to wane significantly. Revenues decrease by 45% and the firm incurred net losses amounting to J$10 billion dollars due to reduction in revenues and impairment of inventory and machines. Furthermore, the entity was delinquent on filing its monthly general consumption taxes (GCTs) and now faced fines, interest and penalties amounting to J$1.5 billion. Additionally, the management accounts depicted huge unfavourable variances which currently remain unexplained. As a result, MBDL has reneged on earlier promises made to the city of Montego Bay. The company failed to make due on its obligation to clean the beaches, parks and historical buildings. Despite this, the mayor went ahead as planned and acquired residents and cleaning agencies to clean on the basis that MBDL will commit to earlier promises. To date, neither the parish council nor the mayor was contacted and the CEO stated in a letter to the mayor that he and his company had no contractual obligations to the city. He contacted the entitys legal counsel who also stated that a contract was not draft between both parties; therefore, the likelihood of potential laws suite is remote. Nevertheless, the mayor commenced legal actions against the CEO and MBDL. The suit commenced on December 10, 2015. However, the court postponed proceedings until January of the subsequent year. The current financial accounting period ends on December 31, 2015 and management failed to disclose matter in the financial statements for this period.

Should the matter be adjusted or disclosed in the current financial statements? If an adjustment or disclosure was to be made, advise management on the most reliable amount.