Financial Accounting Assignment Solution: Grace Ltd Analysis

This financial accounting assignment solution addresses a case study involving Grace Ltd. The assignment requires the student to analyze various scenarios that occurred after the reporting period ending on June 30, 2019, and determine whether they are adjusting or non-adjusting events, according to AASB 110. The solution classifies events such as a breach of contract by a cloud service provider, a government announcement impacting property value, discovered fraud, and a decline in share value. Each event is thoroughly explained, with references to relevant AASB 110 standards, and includes appropriate note disclosures and journal entries where applicable. The solution demonstrates a clear understanding of the accounting principles for events after the reporting period, and how they affect financial statements.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer to Question 1...................................................................................................................2
References....................................................................................................................................4

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Answer to Question 1
a) This can be classified to be a non-adjusting event (AASB 110.3(b)).
An entity will not alter the amounts shown by the financial statements to mirror non-
adjusting events occurring after the completion of the reporting period (Loftus et al., 2017).
The reporting period of Grace Ltd. ends on 30 June 2019 and the breach of contract occurs in
July 2019. It reflects the events occurring after the reporting period and does not affect the
financial statements before 30 June (AASB 110.10).
This event is due to the beginning of a key litigation rising exclusively due to the events
happening later to the reporting period (AASB 110.22(j)).
Note Disclosure: On 2 August 2019, the legal action commenced against the service provider
for breach of contract on his part. This is expected to increase the current profit levels by
$300000 when the litigation is settled.
b) This can be classified as a non-adjusting event (AASB 110.3(b)).
It is a non-adjusting event because a drop in the fair value of an investment occurring after
the completion of the date of reporting period and before the financial statements are
authorised to be issued and hence does not affect the financial statements on the date of
reporting (AASB 110.11).
This non-adjusting event is occurring due to an abnormal change in the asset values and
foreign exchange transactions after the reporting period (AASB 110.22(g)).
Note Disclosure: On 5 August 2019, the government announced a new airport plan that lead
to a decline in the worth of the assets. This is applicable for the financial year beginning from

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1 July 2019 and is not indicative of the conditions existing on 30 June 2019 (CAANZ, 2019).
The financial effect would be a decline in the value of the assets by $800000.
c) This can be classified as an adjusting event (AASB 110.3(a)).
This is an adjusting event as the frauds or errors have been discovered after the preparation of
financial statements and shows that the financial statements are not correct (AASB 110.9(e)).
The journal entry for the repayment of the money would be:
DR Accounts Receivable $38000
CR Allowance for fraud $38000
d) This can be classified as a non-adjusting event (AASB 110.3(b)).
This is a non-adjusting event because it shows a situation which is based on the information
received after the reporting period and does not replicate the conditions prevailing on
reporting period. The change is occurring due to abnormally large changes in the market
conditions (AASB 110.22(g)).
Note Disclosure: On 20 July 2019, the value of the shares fell from $500000 to $250000
which is applicable for the new financial year commencing from 1 July 2019. The financial
effect of this event is a drop in the worth of the shares by $250000.

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References
CAANZ. (2019). Financial reporting handbook 2019 Australia. Australia: John Wiley & Sons
Ltd.
Loftus, J., Leo, K., Boys, N., Daniliuc, S., Boys, N., Ang, H., & Byrnes, K. (2017). Financial
Reporting (2nd ed.). Brisbane: John Wiley & Sons Ltd.