Question 4

The financial statements of Penari Ltd are being finalised for the year ended 31 March 2017. Penari Ltd would like to present the financial statements to the board of directors for approval for issuance on 10 June 2017. Uncertainty still exists on the following matters:

1. Penari Ltd determined during May 2017 that a debtor, IOU Ltd, which owes an amount of N$20 000 to Penari Ltd at 31 March 2017, is currently experiencing financial difficulties and will probably not be able to settle its debt. After further investigation it came to light that the problem has already existed for the past six months, but as Penari Ltd was unaware of this, the company continued granting credit to IOU Ltd. The result is that an amount of N$35 000 was owed by IOU Ltd at 31 May 2017.

2. Due to a cloud burst during the first week in April 2017 the basement level of Penari Ltd's premises was flooded, resulting in the total destruction of the inventory stored there. The cost of the inventory amounting to N$75 000 is included in the inventory figure in the financial statements at 31 March 2017.

3. A claim amounting to N$150 000 was instituted against Penari Ltd on 1 March 2017 in terms of a product guarantee given by Penari Ltd on its products. On 10 June 2017 it is still not certain if the claim will be successful and the extent of the costs is also uncertain.

4. Penari Ltd has a debtor, Dot ltd which owes Penari Ltd N$55 000 at 31 March 2017. During April 2017 Dot Ltd's premises were destroyed by a fire and all the assets as well as the accounting records were destroyed. Dot Ltd was not insured. However, during April 20.17 the directors of Dot Ltd negotiated with its holding company to settle the debts of Dot Ltd. Dot Ltd is not certain if these debts will be settled. At the time of the fire the outstanding amount according to Penari Ltd's records was N$64 000.

5. On 31 March 2017 Penari Ltd had 800 "Item 4" units on hand at a cost of N$16 000. During April 2017 Penari Ltd determined that half of the "Item 4" inventory items on hand at 31 March 2017 had a defect due to a manufacturing error resulting from a problem encountered with Machine 1. The defective items can be sold for N$5 each and the costs to repair the machine will be N$15 000.

Required:

a) State, in each of the above cases, whether an adjusting or non-adjusting event occurred.

b) Briefly discuss how the events will affect the financial statements of Penari Ltd for the year ended 31March 2017, according to the requirements of the International Financial Reporting Standards (lFRSs) . Give reasons for your answers.