The following information has been made available to you to assist in the preparation of the financial statements of ABC Ltd for the year ended 30 June 2022.

Event 1

On 25 August 2022, the company received notification that a customer owing $200 000 had gone into liquidation. The liquidator advised that unsecured creditors are likely to receive a distribution of only 20c in the dollar. The liquidation was caused by a flood in July 2022 which destroyed the customers operating plant and warehouse. The damage was not covered by insurance.

Event 2

The company has been involved in a dispute with a government environment agency relating to the release of noxious gases from its manufacturing plant in early June 2022. An expert investigation was conducted to determine if the company was at fault. The draft financial report already discloses contingent liability in the notes detailing the investigation and estimating the potential damages at $1.8 million. The investigators report, released on 1 August 2022, found ABC Ltd to be responsible for the release and damages amounting to $2 000 000 were payable by the company.

ABC Ltds draft profit for the year ended 30 June 2022 is $800 000. On 30 Sep. 2022, the director of ABC Ltd. signed off the declaration, the date on which financial statements are authorised for issue.

Required

1. Classify the above event as either adjusting or non-adjusting events after the end of the reporting period. (5 marks)

2) Based on your answer to requirement 1, prepare the necessary journal entries or note disclosures to comply with the requirements of AASB 110. (10 marks)