Review the information presented in the Learning Resources for using the Walden Library, searching the databases, and evaluating online resources.
February 14, 2019
What terms (words) would you insist be included in the Sales Contract so you would not bear the Risk of Loss?
February 14, 2019

(i) Based on the information provided, explain whether the financial statements require amendment; and
(ii) Describe audit procedures which should now be performed in order to form a conclusion on any required

3 Grains 4U Co (Grains) manufactures breakfast cereals and has three factories, four warehouses and three distribution
depots spread across North America. The audit for the year ended 31 December 2015 is almost complete and the
financial statements and audit report are due to be signed shortly. Profit before taxation is $7·9 million. The following
events have occurred subsequent to the year end and no amendments or disclosures have been made in the financial
statements.
Event 1 – Fire
On 15 February 2016, a fire occurred at the largest of the distribution depots. The fire resulted in extensive damage
to 40% of the company’s vehicles used for dispatching goods to customers; however, there have been no significant
delays to customer deliveries. The company estimates the level of damage to the vehicles to be in excess of
$650,000. Only a minimal level of inventory, approximately $25,000, was damaged. Grain’s insurance company has
started to investigate the fire to assess the likelihood and level of payment, however, there are concerns the fire was
started deliberately, and if true, would invalidate any insurance cover.
Event 2 – Inventory
On 18 February 2016, it was discovered that a large batch of Grain’s new cereal brand ‘Loopy Green Loops’ held in
inventory at the year end was defective, as the cereal contained too much green food colouring. To date no sales of
this new cereal have been made. The cost of the defective batch of inventory is $915,000 and the defects cannot be
corrected. However, the scrapped cereal can be utilised as a raw material for an alternative cereal brand at a value of
$50,000.
Required:
For each of the two subsequent events described above:
(i) Based on the information provided, explain whether the financial statements require amendment; and
(ii) Describe audit procedures which should now be performed in order to form a conclusion on any required
amendment.
Note: The total marks will be split equally between each event.


 

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