The directors of Kumba Ltd. are reviewing the draft financial statements of the company for the year ended 30 June 2009. Various matters relating to...

The directors of Kumba Ltd. are reviewing the draft financial statements of the company for the year ended 30 June 2009. Various matters relating to the financial statements require to be concluded before the financial statements are approved by the directors.
Required:
Explain how the following matters relating to the financial statements of Kumba Ltd. should be dealt with, stating in each case the relevant accounting standard:
i. After the balance sheet date, one of the factories was seriously damaged by fire. The insurance company has agreed to cover only part of the loss. The company's going concern is not affected.
ii. Kumba Ltd. guaranteed another company in 2007. No disclosure has been made in previous financial statements, but events in the latter part of 2009 suggest that the liability will fall on Kumba Ltd. in the year ending 30 June 2010.

(i)
The destruction of the factory after the balance sheet date is a non-adjusting event according to IAS 10 events after the reporting period. Since the going concern of the company is not affected then, the management should make the appropriate disclosures in the financial statements since non-disclosure would affect the ability of users to make proper evaluations and decisions

(ii)
The guarantee made by Kumba does satisfy the conditions as laid out in IAS 37 provisions, contingent assets, contingent liabilities for it to be recognised as a provision. It has been shown that there is a high chance that the liability will fall on Kumba. Therefore, in compliance with IAS 37, the management of Kumba should make a provision in the financial statements.

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Wilfykil answered the question on February 13, 2019 at 06:10

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