STUDENT NUMBER: Solution 1 v = 1/2 To: A. Studenty From: A. Traineev Date: 15 March 20.7v Re: Memorandum: Waterfall Limited 20.6 - Financial Accounting Issuesv 2.0 Please refer to the appropriate accounting treatment of each of the issues raised in respect of Waterfall Limited's 31 December 20.6 annual financial statements. vv 1.0 1. Dividends declared on 15 January 20.7v Waterfall Limited has declared dividendsv on 15 January 20.7v, which is after v the reporting period (which ended on 31 December 20.6). In terms of IAS 10 Events After the Reporting Period, such dividends are not recognised as a liability at the end of the reporting period because no obligation v existed at that time (i.e. no declaration took place). This is therefore a non-adjusting eventy after reporting date as it does not relate to a condition that existed at reporting datev. It should, however be disclosedv V in terms of IAS 1 Presentation of Financial Statements. 5.0 2. Damages claimv v This is a contingent liabilityv since the outcome is dependent on an uncertain future eventv (the outcome of a court casev). Since there is a possibility that the claim will succeedy (even though it is not probable), the contingent liability for the R2 million claim together with possible tax implications should be disclosedy by way of a notev to the financial statements. The note should include a statement of the naturev of the contingent liability together with an estimate of the financial effectv. 8.0 Legal feesv in defence of the claim incurred up to 31 December 20.6 should be provided for at 31 December 20.6v. Legal fees that are incurred afterv the 31 December 20.6 should not be provided forv v as there is no obligation at reporting date to pay the legal fees at that time. ---
3. Loss VV - Financial asset - listed investment This is a non-adjustingy event after reporting date, as it does not relate to conditions that existed at reporting v (i.e. it is indicative of conditions that arose subsequent to reporting date). Such conditions refer to the events and circumstances that only arose after the reporting period v so as to affect the carrying amount/fair value of the investments in that period 4.5 The reduction in fair value should be disclosedy by way of a notev to the financial statements as non-disclosure would affect the ability of users of the financial statements to make proper evaluations and decisionsv v. 4. Bomb explosion v This is a non-adjusting eventy after reporting date since the bomb explosion occurred after reporting datev and therefore does not concern conditions existing at reporting date. However, it should be disclosedv by way of a notev to the financial statements as non-disclosure would 4.5 affect the ability of the users of the financial statements to make proper evaluations and decisionsvv. (It is assumed that the going concern concept is still appropriate to the companyv v.) 5. Non-implementation of 10% increasev No disclosurev v is required regarding this in