The following information pertaining to two companies, unrelated to each other, is available:
1. Fly Construction Ltd is a Durban-based company currently involved in a project in a foreign country. The multi-million rand project involves a hotel and convention center for an international group of hoteliers. After the reporting date but prior to the authorization of the financial statements for the issue, the company received the news that, as a result of a bloodless coup d’état, all construction work has ceased. As a precautionary measure, the American embassy in that country advised foreigners to leave. Fly Construction Ltd’s technical and supervisory staffs were all evacuated. Total construction costs incurred up to the date of the evacuation amounted to R11,0 million of which R9,5 million was incurred up to the reporting date. An R2,0 million progress payment due at year-end is still outstanding.
2. During the current financial year under review, Play Galore Ltd completed a housing development project consisting of 2 000 units for Blacksburgh Inc, an American company engaged in a mining venture in Iceland. Shortly afterward a hurricane caused extensive damage to these houses, which resulted in considerable loss to Blacksburgh Inc. The company contended that Play Galore Ltd had not taken into account the adverse weather conditions normally experienced in the region in the design and construction of the houses. Blacksburgh Inc indicated that it will take civil action in both the American and South African courts claiming R20,0 million. Play Galore Ltd’s legal advisors are of the opinion that any case against the company to be heard in the South African courts will fail but are not able to express an opinion on the outcome of the case if it is heard in America as they lack sufficient information the plaintiff’s case. On the date the directors authorized the financial statements for the issue, no case had been filed nor had legal proceedings commenced in either country, Required Discuss how Fly Construction Ltd and Play Galore Ltd must deal with the above matters in their financial statements so as to comply with the requirements of International Reporting Standards (IFRS).
Commence your answer with a brief analysis of all the facts and issues involved. on
