Vulture Limited

Vulture Limited is a NSX Securities Exchange listed, Namibian sweet manufacturer that has a 31 December 2015 financial year-end.

Vulture Limiteds financial results for the year ended 31 December 2015 (Profit of N$50 000 000) have exceeded management expectations. The profitability outlook for 2016 is not very promising.

Just prior to the finalisation of the 31 December 2015 audit the financial director passed the following journal entry that substantially reduced profits to the budgeted 25% return on assets that is required for senior management to receive their fourteenth cheque.

Debit Credit

Additional information: N$ N$

Profit from operations 50 000 000

Provision for major Routine maintenance costing N$30 000 00 10 000 000 maintenance is undertaken every three years. One third of the expected maintenance cost budgeted to be performed during January 2018.

Provision for Vulture Limited is not legally required 11 000 000 environmental to carry out this environmental restoration restoration but during December 2015 the board of directors approved a detailed formal plan to undertake this restoration. This decision will be reported to users in the 31 December 2015 annual financial statements.

Provision for audit fees No audit work was carried out before 31 6 000 000 December 2015.

Provision for advertising In order to generate sales so as to attempt to 20 000 000 costs beat the poor profit forecast for the year ended 31 December 2016 the board approved a N$20 million advertising promotion

Provision for expected During December 2015 a sales manager entered the 3 000 000 loss on contract to company into a contract to supply lollipops to a supply sweets at major customer at below cost price. The sales managers below their expected cost discretionary discount has been reduced during the post balance sheet period so as to ensure that this situation does not arise again. The lollipops were produced and delivered during the post balance sheet period at a loss of N$3 million.

Prior to receiving the above adjusting journal entry no provision had been made in respect of any of the items listed above.

Had the company suitably communicated its intention to perform environmental restoration prior to its end of reporting period date then there would have been a constructive obligation in respect of these future expenditures and the raising of a provision would have been appropriate in the 31 December 2015 annual financial statements.

Is the statement?

b - True

d - False