Question
Sponono Ltd financial Statements for the year ended 31 December 2013 have not yet been authorised for issue. The directors are expecting to authorise the
Sponono Ltd financial Statements for the year ended 31 December 2013 have not yet been authorised for issue. The directors are expecting to authorise the release of these financial statements on 5 May 2014. The following issues, which have not yet considered, require your attention:
a) Receipt of the invoice for audit work
An invoice from the auditors for R100 000.00 was received on 15 March 2014 in respect of the audit of Sponono Ltd financial statements for the year ended 31 December 2013.
b) Insolvent debtor
Vandalism during December 2013 resulted in the complete destruction of a neighbouring companys warehouse, leading to that company filling for insolvency in January 2014. This company was owing Sponono Ltd R100 000 at 31 December 2013. The full balance owing by this debtor is included in the statement of financial position as at 31 December 2013. The liquidators announced in January 2014 that R0.20 per R1 would be paid upon liquidation.
C) Drop in value of investment shares
Sponono Ltd owns 100 000 shares in a listed company. At 31 December 2013 the market price of each of these shares was R5. During March 2014 a material political event occurred that resulted in the share price sliding to R2.
The investment in shares as at 31 December 2013 has not been adjusted for the dropin share price.
D) Issue of Shares
Sponono Ltd will be issuing 500 000 shares at R1 each on 10 May 2014. All amounts are material but none of the issues mentioned above have caused there to be a going concern problem problem.
Required
With reference to the treatment of each of the four issues in the financial statements of Sponono Ltd for the year ended 31 December 2013:
i. Identify whether the event is termed an adjusting or non-adjusting event after the reporting period, or neither.
ii. Briefly explain the reasoning for your answer to part (i) above.
iii. Provided the required adjusting journal entries, where appropriate, or state whether or not any related information would need to be disclosed in the above-mentioned financial statements.
Set your answer out under the following headings:
a. Receipt of the invoice for audit work
b. Insolvent debtor
c. Drop in value of investment shares
d. Issue of shares Ignore taxation
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