1. ABC Ltd. decided to operate a new amusement park that will cost GHS1 million to build in the year 2005. Its financial year-end is December 31, 2005. ABC Ltd. has applied for a letter of guarantee for GHS700,000. The letter of guarantee was issued on March 31, 2006. The audited financial statements have been authorized to be issued on April 18, 2006. The adjustment required to be made to the financial statement for the year ended December 31, 2005, should be (a) Booking a GHS700,000 long-term payable. (b) Disclosing GHS700,000 as a contingent liability in 2005 financial statement. (c) Increasing the contingency reserve by GHS700,000. (d) Do nothing. 2. A new drug named “EEE” was introduced by Genius Inc. in the market on December 1, 2005. Genius Inc.’s financial year ends on December 31,2005. It was the only company that was permitted to manufacture this patented drug. The drug is used by patients suffering from an irregular heartbeat. On March 31, 2006, after the drug was introduced, more than 1,000 patients died. After a series of investigations, authorities discovered that when this drug was simultaneously used with “BBB,” a drug used to regulate hypertension, the patient’s blood would clot and the patient suffered a stroke. A lawsuit for GHS100,000,000 has been filed against Genius Inc. The financial statements were authorized for issuance on April 30, 2006. Which of the following options is the appropriate accounting treatment for this post– balance sheet event under IAS 10? (a) The entity should provide GHS100,000,000 because this is an “adjusting event” and the financial statements were authorized to be issued after the accident. (b) The entity should disclose GHS100,000,000 as a contingent liability because it is an “adjusting event.” (c) The entity should disclose GHS100,000,000 as a “contingent liability” because it is a present obligation with an improbable outflow. (d) Assuming the probability of the lawsuit being decided against Genius Inc. is remote, the entity should disclose it in the footnotes, because it is a non-adjusting material event. 3. At the balance sheet date, December 31, 2005, ABC Inc. carried a receivable from XYZ, a major customer, at GHS10 million. The “authorization date” of the financial statements is on February 16, 2006. XYZ declared bankruptcy on Valentine’s Day (February 14, 2006). ABC Inc. will (a) Disclose the fact that XYZ has declared bankruptcy in the footnotes. (b) Make a provision for this post–balance sheet event in its financial statements (as opposed to disclosure in footnotes). (c) Ignore the event and wait for the outcome of the bankruptcy because the event took place after the year-end. (d) Reverse the sale pertaining to this receivable in the comparatives for the prior period and treat this as an “error” under IAS 8. 4. Excellent Inc. built a new factory building during 2005 at a cost of GHS20 million. At December 31, 2005,the net book value of the building was GHS19 million. Subsequent to year-end, on March 15, 2006, the building was destroyed by fire and the claim against the insurance company proved futile because the cause of the fire was negligence on the part of the caretaker of the building. If the date of authorization of the financial statements for the year ended December 31, 2005, was March 31, 2006, Excellent Inc. should (a) Write off the net book value to its scrap value because the insurance claim would not fetch any compensation. (b) Make a provision for one-half of the net book value of the building. (c) Make a provision for three-fourths of the net book value of the building based on prudence. (d) Disclose this non-adjusting event in the footnotes. 5. International Inc. deals extensively with foreign entities, and its financial statements reflect these foreign currency transactions. Subsequent to the balance sheet date, and before the “date of authorization” of the issuance of the financial statements, there were abnormal fluctuations in foreign currency rates. International Inc. should (a) Adjust the foreign exchange year-end balances to reflect the abnormal adverse fluctuations in foreign exchange rates. (b) Adjust the foreign exchange year-end balances to reflect all the abnormal fluctuations in foreign exchange rates (and not just adverse movements). (c) Disclose the post–balance sheet event in footnotes as a non-adjusting event. (d) Ignore the post–balance sheet event.