Question 1 The following information were taken from the accounting records and draft financial statements of Bear Ltd as at 30 June 2021: 1. On 9 August 2021 a lawsuit was lodged against the company by the next-of-kin of a staff member killed in the 17 June warehouse incident, alleging negligence, and claiming $ 1 million in damages. The court hearing is set on 1 September 2021. Mr Unsure, the company's lawyer advised the directors that the chance of winning the case is very slim. 2. At the annual general meeting held on 28 July 2021, the resolution was passed to offer a one-for-four shares option to the existing ordinary shareholders. There are 2,000,000 units of ordinary shares outstanding, issued at $1 per unit, fully paid. The option carries a value of $0.20 per unit and can be used to purchase a unit of ordinary share at $0.60 per unit. 700,000 holders are expected to purchase the option. 3. On 12 July 2021 Bear Ltd received a machine (HTM2122) which was on transit on the reporting date. The machine was purchased on 15 June 2021 on a free on board (FOB) destination term. The supplier has delivered the incorrect model and Bear Ltd returned the machine to the supplier on the same date. Bear Ltd has paid $5,000 deposit on 29 June 2021 to secure the purchase. The supplier will ship the correct model machine (HTM2212) and the delivery is expected to arrive on 28 July 2021. 4. On 28 June 2021, the board of directors have approved the issuance of debentures of $200,000. The issuance of the debentures was made on 17 July 2021 and cash was received from the private investor on the same date. Required: Classify the above events into adjusting and non-adjusting events after the end of the reporting period, justifying your choice. Provide the accounting treatments based on the classification. All amounts are considered material. Bear Ltd is required to publish its annual reports within four (4) months from the reporting date. 17 marks Question 1 The following information were taken from the accounting records and draft financial statements of Bear Ltd as at 30 June 2021: 1. On 9 August 2021 a lawsuit was lodged against the company by the next-of-kin of a staff member killed in the 17 June warehouse incident, alleging negligence, and claiming $ 1 million in damages. The court hearing is set on 1 September 2021. Mr Unsure, the company's lawyer advised the directors that the chance of winning the case is very slim. 2. At the annual general meeting held on 28 July 2021, the resolution was passed to offer a one-for-four shares option to the existing ordinary shareholders. There are 2,000,000 units of ordinary shares outstanding, issued at $1 per unit, fully paid. The option carries a value of $0.20 per unit and can be used to purchase a unit of ordinary share at $0.60 per unit. 700,000 holders are expected to purchase the option. 3. On 12 July 2021 Bear Ltd received a machine (HTM2122) which was on transit on the reporting date. The machine was purchased on 15 June 2021 on a free on board (FOB) destination term. The supplier has delivered the incorrect model and Bear Ltd returned the machine to the supplier on the same date. Bear Ltd has paid $5,000 deposit on 29 June 2021 to secure the purchase. The supplier will ship the correct model machine (HTM2212) and the delivery is expected to arrive on 28 July 2021. 4. On 28 June 2021, the board of directors have approved the issuance of debentures of $200,000. The issuance of the debentures was made on 17 July 2021 and cash was received from the private investor on the same date. Required: Classify the above events into adjusting and non-adjusting events after the end of the reporting period, justifying your choice. Provide the accounting treatments based on the classification. All amounts are considered material. Bear Ltd is required to publish its annual reports within four (4) months from the reporting date. 17 marks
