a) Morning Delight Company manufactures cereals and operates five factories, six warehouses and five distribution depots in major cities in Ghana. The audit for the year ended 31 December 2019 is almost complete and the financial statements and auditor’s report are due to be signed shortly. Profit before taxation is Ghc 11.6 million. The following events have occurred subsequent to the year-end and no amendments or disclosure have been made in the financial statements. Event 1 – Fire Outbreak On 2 February 2020, a fire occurred at the largest of the distribution depots. The fire resulted in extensive damage to 41% of the company’s vehicles used for dispatching goods to costumers, however, there was no significant delays to customers’ deliveries. The company estimated the level of damage to the vehicles to be in excess of Ghc108,000. Only a minimal level of inventory, approximately Ghc 42,000, was damaged. Secure Insurance company, the insurers of Morning Delight Company has started to investigate the fire to assess the likelihood and the level of payment, however, there are concerns that the fire was started deliberately, and if it is true, it will invalidate any insurance cover. Event 2 – Inventory On 22 February 2020, it was discovered that a large batch of Morning Delight Company’s new cereal brand ‘Anopayede’ held in inventory at the year-end was defective, as the cereal contained too much sugars. To date no sales of this new cereal have been made. The cost of the defective batch of inventory is Ghc 1,500,000 and the defects cannot be corrected. However, the scrapped cereal can be utilized as a raw material as an alternative cereal brand at a value Ghc 84,000. Based on the two subsequent events above you are required to: i. Explain whether the financial statements require amendment, and ii. Describe audit procedures which should now be performed in order to form a conclusion on any required amendments
a) Morning Delight Company manufactures cereals and operates five factories, six warehouses and five distribution depots in major cities in Ghana. The audit for the year ended 31 December 2019 is almost complete and the financial statements and auditor’s report are due to be signed shortly. Profit before
Event 1 – Fire Outbreak
On 2 February 2020, a fire occurred at the largest of the distribution depots. The fire resulted in extensive damage to 41% of the company’s vehicles used for dispatching goods to costumers, however, there was no significant delays to customers’ deliveries. The company estimated the level of damage to the vehicles to be in excess of Ghc108,000. Only a minimal level of inventory, approximately Ghc 42,000, was damaged. Secure Insurance company, the insurers of Morning Delight Company has started to investigate the fire to assess the likelihood and the level of payment, however, there are concerns that the fire was started deliberately, and if it is true, it will invalidate any insurance cover.
Event 2 – Inventory
On 22 February 2020, it was discovered that a large batch of Morning Delight Company’s new cereal brand ‘Anopayede’ held in inventory at the year-end was defective, as the cereal contained too much sugars. To date no sales of this new cereal have been made. The cost of the defective batch of inventory is Ghc 1,500,000 and the defects cannot be corrected. However, the scrapped cereal can be utilized as a raw material as an alternative cereal brand at a value Ghc 84,000.
Based on the two subsequent events above you are required to:
i. Explain whether the financial statements require amendment, and
ii. Describe
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