Mindbendo Limited is a company whose principal activity is the manufacture of games consoles. The audit of Mindbendo Lim

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Mindbendo Limited Is A Company Whose Principal Activity Is The Manufacture Of Games Consoles The Audit Of Mindbendo Lim 1 (46.62 KiB) Viewed 11 times

Mindbendo Limited is a company whose principal activity is the manufacture of games consoles. The audit of Mindbendo Limited for the year ended 31 December 2019 is nearly complete and the financial statements and the audit report are due to be signed next week on the 10 March 2020. However, the following additional information on two material events has just been presented to the auditor. Event 1-Occurred on 10 January 2020 The wiring circuit in a new type of games console has been found to be defective making the console unsafe for use. There have been no sales of this console; it was due to be marketed in the next few weeks. The company's insurers estimate that inventory to the value of RM950,000 has been affected. The insurers also estimate that the consoles are now only worth RM425,000. No claim can be made against the supplier of circuit boards as this company is in liquidation with no prospect of any amounts being paid to third parties. The insurers will not pay Mindbendo Limited for the fall in value of the inventory as the company was underinsured. This entire inventory was in the finished goods store at the end of the year and no movements of inventory have been recorded post year-end. Event 2 - Occurred on 5 February 2020 Production at their main factory was halted for one day when a truck carrying toxic waste generated in the production process reversed into a metal pylon. This accident caused a leak from the truck - allowing toxic waste to spread across the factory premises and into a local river. The Environmental Agency is currently considering whether the release of waste was in breach of environmental legislation. The company's insurers have not yet commented on the event. b) For each of the two events above: (1) Explain whether the events are adjusting or non- adjusting according to IAS 10 Events After the Reporting Period (4 marks) (ii) Based on your answer above, outline for both events how they should be accounted for in the financial statements of Mindbendo Limited for the year ended 31 December 2019. (4 marks) (iii) Outline for both events three audit procedures which the auditor should undertake to ensure the events are correctly reflected in the financial statements for the year ended 31 December 2019. (6 marks) c) Explain what a letter of representation is and why a letter of representation may be required for these two events. (7 marks)