DPA 50143 FINANCIAL ACCOUNTING 5 Prepared by: RS

PRACTICE EXERCISES: TOPIC 5 MFRS 110 EVENTS AFTER REPORTING DATE

1. Consider the following subsequent events:

1) Loss of assembly plant due to fire.
2) Issuance of significant number of ordinary shares
3) Material loss on a year-end receivable because of a customer’s
bankruptcy
4) Settlement of prior year’s litigation against the company
5) Merger with another company of comparable size

For each event, indicate a company should (a) adjust the financial statements or (b)
disclose in notes to the financial statements.

2. An entity made a provision for doubtful debts of 2% of its trade receivables and the
amount provided for the end of 31 December X4 was RM1.5 million. On 15 January, a
debtor who owed the entity RM2 million become insolvent. Advise the entity.

3. As at 31 December X2, an entity determined its closing inventory as RM2.5 million based
on cost. Part of the inventory of RM1 million was damaged but the entity expected the
goods to be sold above cost. However, these goods were sold on 19 January X3 for
RM800,000. Advise the entity.

4. Consider the following subsequent events whose financial year-end was 31 December X3
and advise the entity.

a) Entity signed a contract to acquire a factory building, at an estimated cost of

RM130 million, on 10 January X4.

b) Entity decided to close down its shoemaking operation on 28 February X4 which

was identified as a separate operation from the rest of the entity’s business.

c) Entity proposed the final ordinary dividend for year X3 on 1 March X4.

d) Fire destroyed the factory and office building of one of its major operations on 10
February X4. The loss was estimated to be in millions of ringgits and the loss will
affect the going concern status of the operation.

e) The factory plant was damaged on 3 March X4 and the recoverable amount was
estimated to be RM1.2 million and the carrying amount was RM1.5 million.

f) The entity had provided for a contingent liability of RM425,000 but judgement
made on 12 February X4 was RM500,000.

g) A civil suit brought against the entity before the end of the financial year. The
lawyers advised the company would lose the case and suffer a loss of RM1.2
million. On 10 March X4, the company and the complainant agreed to settle it out
of court. The company paid RM1 million.

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