- 4 Marks
FR – Nov 2019 – L2 – Q2d – Financial Reporting Standards and Their Applications
Accounting treatment of an event after the reporting period, involving inventory loss due to flooding.
Question
Nabdam Ltd operates in the media and publications industry and reports under IFRS. The 2018 financial statements of Nabdam Ltd are still in draft form. The audit is ongoing, and the company intends to authorise the financial statements in April 2019.
Nabdam Ltd rents a distribution warehouse in Korle, located beside the River Odorna. On 3 January 2019, the River Odorna burst its banks, and GH¢650,000 of Nabdam’s inventory was destroyed by the flood. The inventory was not insured, and Nabdam will not receive any compensation for the loss. The company is not sure how to account for this event. The destroyed inventory is included in the inventory figure that is disclosed on Nabdam’s draft statement of financial position at 31 December 2018.
Required:
Explain with justification, the appropriate accounting treatment of the above transaction. (4 marks)
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