Mardhiah Resources Bhd is finalizing its financial
statement for the year ended 30 June 2018. The company, however, has the
following events which need careful consideration so as to adhere to the
requirements of MFRS137 Provisions,
Contingent Liabilities and Contingent Assets.
i) The
company is in the business of selling cars. During the year, the company sold
10,000 units of cars which come with a three-year warranty. It is estimated
that the company will incur RM5,000 for 100 units of the cars sold due to
effect.
ii) The
company is facing litigation for damages amounting to RM100,000 for an unfair
dismissal of a former employee. However, the legal advisor ruled out that there
is a very remote chance that the former employee will win the case.
iii) The
company has a legal suit with one of its major suppliers which may result in a
receipt of compensation amounting to RM200,000. Its legal advisor ruled out
that there is a high possibility that the company will be awarded with the
compensation. However, it is dependent upon the verdict of the court.
iv) In
September 2018, before the financial statement was
authorised for issue, the company received a court order to pay for the damages
the company has caused as a result of pollution to the river in Idham Valley.
Even though the company has no legal obligation to do so, the company declares
to the public that it will be responsible to take care of the environment. The
damage is estimated to cost the company by RM200,000.
Required:
a.
For
each of the economic events described above, advise the management on the
proper accounting treatment in accordance with MFRS137 Provisions, Contingent Liabilities and Contingent Assets.
b. Advise the management on the relevant journal entries
for transaction (i) and (iv).
Can you post the answers?
ReplyDelete