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SECTION A - CASE 2: AERODYNAMICS LOGISTICS
AeroDynamics Logistics is a drone delivery startup. You are the audit senior for the year ended 30 September 20X6. During the audit, you note the following:
- The company has a significant cash burn rate and its main operating license expires in two months, with renewal pending a safety review.
- On 15 October 20X6, a major warehouse fire destroyed 40% of their drone fleet.
- A key customer, accounting for 25% of revenue, declared bankruptcy on 5 November 20X6.
The financial statements are due to be signed on 30 November 20X6.
Which TWO of the following are operating indicators that AeroDynamics Logistics may not be a going concern? (Select TWO)
ACCA · Question 08 · Review and Reporting
SECTION A - CASE 2: AERODYNAMICS LOGISTICS
AeroDynamics Logistics is a drone delivery startup. You are the audit senior for the year ended 30 September 20X6. During the audit, you note the following:
- The company has a significant cash burn rate and its main operating license expires in two months, with renewal pending a safety review.
- On 15 October 20X6, a major warehouse fire destroyed 40% of their drone fleet.
- A key customer, accounting for 25% of revenue, declared bankruptcy on 5 November 20X6.
The financial statements are due to be signed on 30 November 20X6.
Assuming the key customer owed AeroDynamics a material balance at 30 September 20X6, how should the customer's bankruptcy on 5 November 20X6 be treated?
SECTION A - CASE 2: AERODYNAMICS LOGISTICS
AeroDynamics Logistics is a drone delivery startup. You are the audit senior for the year ended 30 September 20X6. During the audit, you note the following:
- The company has a significant cash burn rate and its main operating license expires in two months, with renewal pending a safety review.
- On 15 October 20X6, a major warehouse fire destroyed 40% of their drone fleet.
- A key customer, accounting for 25% of revenue, declared bankruptcy on 5 November 20X6.
The financial statements are due to be signed on 30 November 20X6.
Assuming the key customer owed AeroDynamics a material balance at 30 September 20X6, how should the customer's bankruptcy on 5 November 20X6 be treated?
Answer options:
As a non-adjusting event, requiring disclosure only.
As an adjusting event, requiring the receivables balance at 30 September 20X6 to be written down or provided against.
It should be ignored as the bankruptcy occurred after the year-end.
As an adjusting event, requiring revenue for the entire year to be reversed.
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