c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for illness allegedly caused by chemicals used at a subsidiary company’s manufacturing plant in the 1990s. This is the tenth such writ lodged, and the client has denied responsibility in all cases because it was unreasonable to believe at that time that these chemicals had adverse health effects. The claimant has new scientific evidence that counters this defence. (d) The review of subsequent cash receipts has revealed that several of the trade receivables that were considered doubtful have now been paid. However, the audit procedures have shown that a large debtor that was considered safe at 30 June was unexpectedly declared bankrupt on 20 July. The year-end for the company is 30 June and the audit report is due to be signed on 20 August. Required: For each of the items above, explain what type of subsequent event it is and the appropriate treatment of the item in the financial report.
c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for illness allegedly caused by chemicals used at a subsidiary company’s manufacturing plant in the 1990s. This is the tenth such writ lodged, and the client has denied responsibility in all cases because it was unreasonable to believe at that time that these chemicals had adverse health effects. The claimant has new scientific evidence that counters this defence.
(d) The review of subsequent cash receipts has revealed that several of the trade receivables that were considered doubtful have now been paid. However, the
on 20 July. The year-end for the company is 30 June and the audit report is due to be signed on 20 August.
Required:
For each of the items above, explain what type of subsequent event it is and the appropriate treatment of the item in the financial report.
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