QUESTION 3 (20marks) Carson audited the accounts of Carey Ltd, an engineering fi

Question

QUESTION 3 (20marks) Carson audited the accounts of Carey Ltd, an engineering firm listed on the Singapore Stock Exchange for the year ended 30 June 2016. Carson is aware that certain events that took place after 30 June (but before she had issued her report dated 19 September 2016) may affect the company's financial statements. On 25th July 2016 Carey settled and paid a claim involving prior employees alleging sexual discrimination as a result of promotions announced at the Christmas party in 2015. Five women who were overlooked for promotion to managers had undertaken legal action in March 2016. l) On 1 August 2016, Carey Ltd made an announcement to the Singapore Stock Exchange of the intention to take over a private engineering partnership. This would increase sales revenue of Carey Ltd by 15 per cent. It was to be funded by a 1:10 rights issue. i On 12th August 2016 a fire damaged the head office of Carey. The buildings and fixtures and fittings were only partly insured. iv) A its 5th September 2016 meeting, Carey's board of directors voted to double the advertising budget for the coming year and authorized a change in advertising agencies. v) On 10th June 2016, the management of a manufacturing entity decided to close one of its division. At the end of the month, management had prepared a formal plan for closing the division, bust still not communicated the plan to those affected. Require: Indicate in each case the required treatment of these events after reporting date, in the financial statements. Each of the cases is independent and is to be considered separately. Justify your answer

Explanation / Answer

1. since obligation for paying claim involving prior employees alleging sexual discrimination as a result of promotions announced at the Christmas party in 2015 was exist on 30th june, 2016. And claim paid & settled on 25th July i.e. before date of approval of Financial Statement. Hence provision for this claim need to be created as it is adjusting event.

2. This is not an adjusting event as it is occurring after Balance sheet date and no condition exist on Balance sheet date.

3. Fire damaged head office at Carey is event that needs to disclose in Financial Statement as it may affect the going concern.

4. Since double advertising budget approved by board is not an adjusting event. So company may disclose this event in disclosure to Financial Statement.

5. Since company plan to close one division of manufacturing entity, so that it should be disclose in Financial Statement and no actions taken further also need to be disclosed.

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