question about accounting

QUESTION 1

Irma Turbines Ltd is a company that specialises in manufacturing wind turbines for windfarms.

Irma Turbines Ltd completed their financial statements for the year ended 31 March 2017 and

authorised them for issue on 1 May 2017. The new managing director, who started in June of

2017, is unsure about the treatment of the following material events that occurred in 2017 and

has asked you for advice.

(i) 16 January 2017 A flood that previously occurred at the main factory of Irma Turbines

Ltd was determined to have caused $150 000 in underinsured damage to the factory building.

(ii) 8 April 2017 The government announced, during the financial year ended 31 March 2017,

that a piece of empty land owned by Irma Turbines Ltd will be expropriated. The land has a

book value of $1 million and the government has now decided to pay $3 million to expropriate

it.

(iii) 15 April 2017 Slow moving inventory, measured at net realisable value of $700 000 in

the general ledger on 31 March 2017, was sold for $400 000 cash.

(iv) 26 April 2017 Irma Turbines Ltd decided to discontinue its operations at one of its

factories. This factory (land, building and machinery) has a gross book value of $9 million and

accumulated depreciation of $5 million. It currently has a fair value less disposal costs

estimated at $3 million.

(v) 5 May 2017 The directors declared a final dividend for the year ended 31 March 2017

of $0.10 per share. There were 26 000 000 shares outstanding on 31 March 2017. There are

30 000 000 shares outstanding on 5 May 2017.

Required:

Prepare a professional report for the Irma Turbines Ltd managing director to explain the correct

treatment of the above five events.

NZ IAS 10 Events after the Reporting Period

must be

referred to in the introduction to your report.

Professional Report for Irma Turbines Ltd.

Introductory paragraphs; include NZ IAS 10 Events after the Reporting Period definitions to

support the report.

16 January 2017

(ii) 8 April 2017

(iii) 15 April 2017

(iv) 26 April 2017

(v) 5 May 2017

Conclusion: