It is 1 July 20X1. You are the audit manager responsible for the audit of Turquoise Ltd (Turquoise) an online jeweller. The audit of the financial statements for the year ended 31 March 20X1 is nearing completion and the audit report is due to be signed next week. The following events have occurred after the year end: Event 1 A key supplier of Turquoise is suing them for breach of contract. The lawsuit was filed prior to the year-end, the sum claimed by them is $1 million. This has been disclosed as a contingent liability in the notes to the financial statements. Recent correspondence from the supplier indicates that they are willing to settle the case for $500,000 and Turquoise have agreed to this.   Event 2 In April 20X1 one of Turquoise’s two warehouses flooded. All of the inventory stored there was damaged and has been disposed of. No amendments or disclosures have been made in the financial statements relating to this event. For each event determine whether it is an adjusting or non-adjusting event and briefly describe the amendments, if any, that are required to the financial statements.

Question

It is 1 July 20X1. You are the audit manager responsible for the audit of Turquoise Ltd (Turquoise) an online jeweller. The audit of the financial statements for the year ended 31 March 20X1 is nearing completion and the audit report is due to be signed next week.

The following events have occurred after the year end:

Event 1

A key supplier of Turquoise is suing them for breach of contract. The lawsuit was filed prior to the year-end, the sum claimed by them is $1 million. This has been disclosed as a contingent liability in the notes to the financial statements. Recent correspondence from the supplier indicates that they are willing to settle the case for $500,000 and Turquoise have agreed to this.

 

Event 2

In April 20X1 one of Turquoise’s two warehouses flooded. All of the inventory stored there was damaged and has been disposed of. No amendments or disclosures have been made in the financial statements relating to this event.

For each event determine whether it is an adjusting or non-adjusting event and briefly describe the amendments, if any, that are required to the financial statements.

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