Question 1: Provisions, Contingent Liabilities & Events after Reporting Period

1. The following information has been made available to you to assist in preparing the financial statements of Frank's Ltd for the year ended 30 June 2021.

A former employee, Mrs Rissa Meredith ceased employment with the company on 1 May 2021 following a disagreement with one of the Company directors. Several weeks later, on 18^th June 2021, Rissa lodged a complaint of wrongful dismissal with the Employment Tribunal and is seeking compensation of $100,000 from the Company. The company referred the issue to the company lawyer. The company lawyer is of opinion that there is a 30% chance that the company will be found liable for paying a compensation. However, the date for the hearing to award damages has not yet been set and the parties havent agreed on a compensation settlement yet.

Required:

Explain how Frank's Ltd should treat the above issue for the year ended 30 June 2021 in accordance with NZ IAS 37. Your answers also should include the justifications, preparation of any necessary journal entry or a discussion of any disclosure requirements with a note disclosure to comply with the requirements of NZ IAS 37.

b) The following information has also been made available to you in finalising the financial statements of Frank's Ltd for the year ended 30 June 2021. Authorisation date of financial statements was on 25 September 2021.

On 5 July 2021, the purchasing manager returned a batch of faulty raw materials worth of $125,000 which were purchased on 25 June 2021 from SSAB Ltd. Due to the return of this batch of goods, the production process has been interrupted during the first half of July. Frank's Ltd is following periodic inventory system to record inventories.

Required:

Classify the above event as either adjusting or non-adjusting event after the end of the reporting period. Justify your classification. Prepare the necessary journal entries or note disclosures to comply with the requirements of NZ IAS 10.