Reference no: EM132566923
Question - Joy Ltd finalised their financial statements for the year ended 31 March 2020 and authorised them for issue on 1 June 2020. The new managing director is unsure about the treatment of the following material events that occurred in 2020 and has asked for your professional advice.
(i) 10 April 2020 - Back in November 2019, a customer initiated legal proceedings against Joy Ltd concerning a breach of contract. The company's legal advisers informed the directors that it was probable that Joy Ltd would be found liable; therefore a provision of $480 000 was recognised in the financial statements for the year ended 31 March 2020. On 10 April 2020, the court found Joy Ltd liable and was required to pay damages of $415 000.
(ii) 15 April 2020 - Inventory, measured at a cost of $156 000 on 31 March 2020, was sold for $300 000 cash on 15 April 2020.
(iii) 24 April 2020 - Back in January 2020, a customer initiated legal proceedings against Joy Ltd concerning a breach of contract. The company's legal advisers informed the directors that it was unlikely that Joy Ltd would be found liable; therefore no provision was recognised in the financial statements but a contingent liability was disclosed in the notes. On 24 April 2020, the court found Joy Ltd liable on a technicality and was required to pay damages of $200 000.
(iv) 2 May 2020- An accounts receivable Strident Ltd went into bankruptcy. On 31 March 2020 Strident Ltd was included in the total of accounts receivable; it was considered doubtful and was therefore included in the allowance for doubtful debts. At 31 March 2020, Strident Ltd owed Joy Ltd $250 000.
(v) 15 May 2020 - Joy Ltd noticed that one of its investments (consisting of 70 000 shares in Doomed Ltd), measured at its fair value of $3.80 per share on 31 March 2020, were now listed on the stock exchange at $1.20 per share.
(vi) 20 May 2020 - Back in October 2019 the government announced that a piece of empty land owned by Joy Ltd would be expropriated by the government; this was to take effect in the financial year ended 31 March 2020. This had not been recognised by Joy Ltd because the expropriation dollar amount had not been officially confirmed. On 20 May 2020 the government paid $3 million to Joy Ltd in payment for the expropriated land. At 31 March 2020 this land had a book value of $2 million.
Required - Prepare a draft professional report for the Joy Ltd managing director to explain the correct treatment of the above six events according to NZ IAS 10 Events after the Reporting Period.