The date is 3 December 2008. The audit of ZeeDiem Co is nearly complete and the financial statements and the audit report are due to be signed next week. However, the following additional information on two material events has just been presented to the auditor. The company’s year end was 30 September 2008.

Event 1 – Occurred on 10 October 2008

The springs in a new type of mattress have been found to be defective making the mattress unsafe  for use. There have been no sales of this mattress; it was due to be marketed in the next few weeks. The company’s insurers estimate that inventory to the value of $750,000 has been affected.

The insurers also estimate that the mattresses are now only worth $225,000. No claim can be made against the supplier of springs as this company is in liquidation with no prospect of any amounts being paid to third parties.

The insurers will not pay ZeeDiem for the fall in value of the inventory as the company was underinsured. All of this 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 5 November 2008

Production at the ShamEve factory was halted for one day when a truck carrying dye used in colouring the fabric on mattresses reversed into a metal pylon, puncturing the vehicle allowing dye to spread across the factory premises and into a local river.

The Environmental Agency is currently considering whether the release of dye was in breach of environmental legislation. The company’s insurers have not yet commented on the event.

Required:

For each of the two events above explain whether the events are adjusting or non-adjusting according to IAS 10 Events After the Reporting Period. (4 marks)