Question 3 part (i) 7.5 marks

Consider each of the following independent material events. In each case the:

• balance date is June 30 2019. f
• inancial report audit was signed on 12 August 2019.
• financial report and the audit report was mailed to members on 20 August 2019.
• Event 1:

On 10 August you discover that a debtor of your client, LMD Ltd, went into liquidation on 7 August. The debtor was reported as owing $475,000 at balance date. A specific provision was raised of $300,000 in April 2019. The preliminary information indicates that the likely payment to unsecured creditors is likely to be zero.

• Event 2:

A cyclone has damaged to the warehouse of your client FNQ Ltd on July 4 2019. Inventory worth $2.4 million was destroyed. The directors believe that only around one third of the value will be recovered from insurers.

• Event 3:

The same facts as in 2, but the insurance company decides to replace all the inventory. The new stock arrives on 31 July 2019.

Required: For each of the above three (3) 'Events' identify your accounting treatment AND justify your response. In the answer below, please write the letter followed by your answer.

Eg.

• (event 1) Your answer
• (event 2) Your answer