Question 5(5 + 5 + 6 = 16 marks)

a) For a reporting period current tax liability and the income tax expense may not be same. Discuss reasons for this with some examples.

b) Give some examples of prior period errors and discuss how they can be corrected.

c) Classify the above events into adjusting and non-adjusting events after the end of the reporting period, justifying your choice.(3 marks each)

In relation to the operations of Jay Ltd, the following events took place after the 30 June 2019 reporting period end:

On 21 July 2019, a factory building was damaged in a big storm. Insurance will cover the replacement of the building loss but lost sales representing $350 000 in profits are not covered. Three worked also lost life when roof collapsed.

On 19 August 2019, a lawsuit was lodged against the company by the families of workers who died in the 21 July storm, alleging negligence, and claiming $3 million in damages. No date has as yet been set for the court hearing.