Supercars Ltd sells sport cars. It does not recognise a provision for warranty because warranty claims for the past five years have been immaterial. Supercars Ltd reported a profit before tax of $500,000 for the year ended 30 June 2021. The company provides the following disclosures in the notes to the financial statements for the year ended 30 June 2021. The financial statements were issued on 31 August 2021: a) In July 2021, a warranty claim was made for a faulty turbo system on 10 cars sold to a large car dealership in May 2021. The cost of repairing the cars was $60,000. This amount has not b) In August 2021 Supercars Ltd was fined $20,000 for breach of noise emission limits at its car assembly plant. This expense and liability have not been provided for in the financial statements as at 30 June 2021. c) A negligence lawsuit has been brought against Supercars Ltd entity for damages sustained in July 2021 on account of the failure of the turbo system in a car sold by the company in May 2021. The damages claim is for $200,000, being the cost of replacing a garage destroyed by the runaway sport car, but this amount has not been recognised in the financial statements because the event occurred after the reporting. REQUIRED: Discuss whether the note disclosure is adequate for each of the after-reporting-period events reported. Should adjustments have been made to the financial statements for the year ended 30 June 2021?
Supercars Ltd sells sport cars. It does not recognise a provision for warranty because warranty claims for the past five years have been immaterial. Supercars Ltd reported a profit before tax of $500,000 for the year ended 30 June 2021. The company provides the following disclosures in the notes to the financial statements for the year ended 30 June 2021. The financial statements were issued on 31 August 2021: a) In July 2021, a warranty claim was made for a faulty turbo system on 10 cars sold to a large car dealership in May 2021. The cost of repairing the cars was $60,000. This amount has not b) In August 2021 Supercars Ltd was fined $20,000 for breach of noise emission limits at its car assembly plant. This expense and liability have not been provided for in the financial statements as at 30 June 2021. c) A negligence lawsuit has been brought against Supercars Ltd entity for damages sustained in July 2021 on account of the failure of the turbo system in a car sold by the company in May 2021. The damages claim is for $200,000, being the cost of replacing a garage destroyed by the runaway sport car, but this amount has not been recognised in the financial statements because the event occurred after the reporting. REQUIRED: Discuss whether the note disclosure is adequate for each of the after-reporting-period events reported. Should adjustments have been made to the financial statements for the year ended 30 June 2021?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
SupercarsLtdsells sport cars. It does not recognise aprovision for warranty because warranty claims for the past five years have been immaterial. SupercarsLtd reported a profit before tax of $500,000 for the year ended 30 June 2021. The company provides the following disclosures in the notes to the financial statements for the year ended 30 June 2021.The financial statements were issuedon 31 August 2021
Transcribed Image Text:Supercars Ltd sells sport cars. It does not recognise a provision for warranty because warranty
claims for the past five years have been immaterial. Supercars Ltd reported a profit before tax of
$500,000 for the year ended 30 June 2021. The company provides the following disclosures in the
notes to the financial statements for the year ended 30 June 2021. The financial statements were
issued on 31 August 2021:
a) In July 2021, a warranty claim was made for a faulty turbo system on 10 cars sold to a large
car dealership in May 2021. The cost of repairing the cars was $60,000. This amount has not
been recognised and the financial statements for the year ended 30 June 2021.
b) In August 2021 Supercars Ltd was fined $20,000 for breach of noise emission limits at its car
assembly plant. This expense and liability have not been provided for in the financial
statements as at 30 June 2021.
c) A negligence lawsuit has been brought against Supercars Ltd entity for damages sustained
in July 2021 on account of the failure of the turbo system in a car sold by the company in May
2021. The damages claim is for $200,000, being the cost of replacing a garage destroyed by
the runaway sport car, but this amount has not been recognised in the financial statements
because the event occurred after the reporting.
REQUIRED:
Discuss whether the note disclosure is adequate for each of the after-reporting-period events
reported. Should adjustments have been made to the financial statements for the year ended 30
June 2021?
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