Question 5

Snapper Ltd is finalising its financial statements for the reporting period ending 30 June 2023. On 26 August 2023, before the financial statements have been finalised and authorised for issue, the companys directors became aware of the following situations:

a) The company owns a night club that was completely destroyed by fire on 25 August 2023. The night club had a carrying amount in the draft financial statements of $1,750,000 at 30 June 2023 (Which was equal to it fair value), and was insured for $1,500,000. The company has adequate business interruption insurances.

b) Snapper hold 1,000,000 shares in Prawn Ltd, representing 10% of that company's share capital, at 30 June 2023. These shares had a carrying amount of $500,000, reflecting a cost of $0.50 per share. On 1 August 2023, Snapper entered into a contract to purchase a further 5,000,000 shares in Prawn Ltd ( 50% of the company's shares capital) for $5,000,000, reflecting the current market value at that date of $1 per share.

c) On 5 August 2023, the directors of Snapper Ltd approved the sale of its fishing business in Tasmania.

The sale will result in a profit of $79,000 being made by Snapper Ltd