Prior to the finalisation of the financial statements for the year ended 30 June 2017, a company experienced a number of material events, including: I on 10 July 2017 the directors decided to close a division of the company at an estimated cost of $1 000 000.
II on 10 August 2017 a court decision found the company liable to pay damages of $500 000 to a major customer who had commenced legal action in April 2015.
III an independent valuation of property conducted on 20 July 2017 revealed that the directors' valuation included in the 30 June 2017 financial statements was overstated by $700 000.
In respect of the events listed above, it will be necessary to adjust the financial statements, by way of general journal entries, for:

Question

Quizplus · Accepted Answer

- Event I occurred after the financial year ended, therefore it does not require an adjustment to the financial statements. Instead, it should be disclosed in the notes to the financial statements.
- Event II requires an adjustment to the financial statements as it is a legal obligation that arose before the end of the financial year and the amount can be reliably estimated.
- Event III requires an adjustment to the financial statements as it is a correction of a misstatement in the valuation of property at the end of the financial year.

Prior to the Finalisation of the Financial Statements for the Year