Homework answers / question archive / The following issues have arisen in Happy Limited during the financial year ended 31 December 2016: (i) The company had an investment valued at RM 200,000 in its financial statements for the year ended 31 December 2016

The following issues have arisen in Happy Limited during the financial year ended 31 December 2016: (i) The company had an investment valued at RM 200,000 in its financial statements for the year ended 31 December 2016

Accounting

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The following issues have arisen in Happy Limited during the financial year ended 31 December 2016:

(i) The company had an investment valued at RM 200,000 in its financial statements for the year ended 31 December 2016. Due to fears over Brexit, the investment reduced in value to RM 180,000 by 10 January 2017.

 

(ii) It purchased a motor vehicle on 30 December 2016 and paid a non-refundable deposit of RM 5,000 on that date. It also wrote a cheque on that date for the balance of RM 20,000 which it posted to the seller. The seller received and cashed the cheque on 3 January 2017.

 

(iii) Happy Limited was sued by a customer who was unhappy with the quality of product delivered to it in June 2016. The court case was heard in late October 2016 but it was not until 8 January 2017 that the judge ruled in favour of Happy Limited and awarded it legal costs of RM 20,000 to cover its solicitor's fees. The legal costs were paid by its customer to Happy Limited on 12 January 2017. Happy Limited was unsure of winning the case and it had previously included a provision in its financial statements for the year ended 31 December 2016 for compensation and legal costs as follows: RM RM

Dr Legal Fees - Administrative Expenses 25,000

Dr Cost of Sales 35,000

Cr Provisions - Current Liabilities 60,000

 

(iv) One of Happy's Limited customers was declared bankrupt on 5 January 2017, owing RM 4,000 to Happy Limited.

 

REQUIREMENT: Advise the management of Happy Limited on the proper accounting treatment of each of the above issues so as to ensure that the financial statements are prepared in accordance with MFRS.