Question 2c
Delta is an entity which prepares financial statements to 31 March each year. Each year the financial statements are authorised for issue on 20 May. The following events are relevant to the year ended 31 March 2016:
Event (c)
On 1 June 2015, the spouse of one of the directors of Delta purchased a controlling interest in entity X, a long-standing customer of Delta. Sales of products from Delta to entity X in the two-month period from 1 April 2015 to 31 May 2015 totalled $800,000. Following the share purchase by the spouse of one of the directors of Delta on 1 June 2015, Delta began to supply the products at a discount of 20% to their normal selling price and allow entity X three months’ credit (previously entity X was only allowed one month’s credit, Delta’s normal credit policy). Sales of products from Delta to entity X in the ten-month period from 1 June 2015 to 31 March 2016 totalled $6 million. On 31 March 2016, the trade receivables of Delta included $1·8 million in respect of amounts owing by entity X. (5 marks)
Required:
Explain and show (where possible by quantifying amounts) how the three events would be reported in the financial statements of Delta for the year ended 31 March 2016.
Note: The mark allocation is shown against each of the three events above. You should assume that all amounts described here are material. When discussing event (a), you are not required to consider disclosure requirements.