- 5 Marks
FR – Nov 2024 – L2 – Q2b – Events After the Reporting Period
Accounting treatment of a court ruling after the reporting period and its impact on Mulba LTD’s financial statements.
Question
As a Trainee Financial Accountant working for Mulba LTD, a technology business, you have been asked by the Financial Controller to provide guidance on how to account for a variety of transactions that took place after the company’s fiscal year ended on December 31, 2023.
Mulba LTD was sued by a customer who was dissatisfied with the quality of a product delivered in June 2023. The court case was heard in late October 2023, but the judgment was delivered on 8 January 2024, ruling in favor of Mulba LTD. The ruling awarded the company legal costs of GH¢20,000 to cover solicitor’s fees.
The legal costs were paid by the customer to Mulba LTD on 12 January 2024.
Mulba LTD was doubtful of winning the case and had previously made a provision in its financial statements for the year ended 31 December 2023 as follows:
| Account | Debit (GH¢) | Credit (GH¢) |
|---|---|---|
| Legal Fees – Administrative Expenses | 25,000 | – |
| Cost of Sales | 35,000 | – |
| Provisions – Current Liabilities | – | 60,000 |
Required:
In accordance with IAS 10: Events after the Reporting Period, advise the management of Mulba LTD on the proper accounting treatment of the above issue to ensure that the financial statements are prepared in compliance with IFRS.
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