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During March 2020 Sable Ltd discovered that, due to an error, no entries had been booked in the financial statements for the year ended 31st March 2019 for a supplier invoice in respect of consultancy services
During March 2020 Sable Ltd discovered that, due to an error, no entries had been booked in the financial statements for the year ended 31st March 2019 for a supplier invoice in respect of consultancy services. The consultancy services were received by Sable Ltd in January 2019. The supplier invoice, dated 31 January 2019, has a value of €179,240 and remains unpaid. The financial statements for the year ended 31 March 2019 show a profit for the financial year of € 731,200.
Required: i) Explain, with reference to the provisions of relevant accounting standards, how this matter should be dealt with in the financial statements of Sable Ltd for the year ended 31 March 2020 and outline the journal entry that is needed to account for this item. 10 Marks ii) “Events taking place after the financial year end may be of interest to shareholders and others who wish to make decisions in relation to a company, but they should not be retrospectively adjusted for in the financial statements”. Considering the provisions of IAS 10 Events after the balance sheet date discuss the validity of this statement.
Expert Solution
1. In this case , there is an omission of expense of 179240 in the financial statements .omission of expense results in overstatement of profit by 179240. Currently, there is income of 731200 , after the adjustment of this invoice , resultant profit wll be 551960. The rectification entry must be passed before the approval of financial statement
Journal entry to pass
Consultancy services Dr 179240
To Accounts payable 179240
Ii. Events occuring after the balance sheet but before the approval in board meeting are dealt in IAS 10. There are certain events whose probability of occurencs exist at the balance sheet and these events occur after the balance sheet ,these events are adjustimg events and these requires adjustment in the financial statements. For example : decision in pending litigation case
Others events that does not exist at balance sheet date but affect the going concern of the entity should be adjusted. For example outbreak of fire at the factory premises resulting in heavy losses.
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