Scribd Logo
Upload

Welcome to Scribd!

  • 51 views

    Assignment 1

    Uploaded by

    Qudsia Shahid
    1. A provision should be made for refunds to dissatisfied customers at year end since the company has a known policy of refunding purchases even without legal obligation. 2. A provision should be made for warranty repairs since past experience indicates 5% of goods sold will require repairs covered by the warranty. 3. A provision should be recognized for environmental damage caused by the oil rig since new legislation now requires rectification, even though it applies retrospectively.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Assignment 1

    Uploaded by

    Qudsia Shahid
    51 views2 pages
    1. A provision should be made for refunds to dissatisfied customers at year end since the company has a known policy of refunding purchases even without legal obligation. 2. A provision should be made for warranty repairs since past experience indicates 5% of goods sold will require repairs covered by the warranty. 3. A provision should be recognized for environmental damage caused by the oil rig since new legislation now requires rectification, even though it applies retrospectively.

    Original Title

    Assignment 1.docx

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    1. A provision should be made for refunds to dissatisfied customers at year end since the company has a known policy of refunding purchases even without legal obligation. 2. A provision should be made for warranty repairs since past experience indicates 5% of goods sold will require repairs covered by the warranty. 3. A provision should be recognized for environmental damage caused by the oil rig since new legislation now requires rectification, even though it applies retrospectively.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    51 views2 pages

    Assignment 1

    Uploaded by

    Qudsia Shahid
    1. A provision should be made for refunds to dissatisfied customers at year end since the company has a known policy of refunding purchases even without legal obligation. 2. A provision should be made for warranty repairs since past experience indicates 5% of goods sold will require repairs covered by the warranty. 3. A provision should be recognized for environmental damage caused by the oil rig since new legislation now requires rectification, even though it applies retrospectively.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    RBA1

    Issues in Accounting Practices


    Assignment #1
    Provision, Contingent Liabilities and Assets

    1. The retail business has a policy of refunding purchases by dissatisfied customer, even
    though it is under no legal obligation to do so. Its policy of making refunds is generally
    known.

    Should a provision be made at the year end?

    2. An entity sells goods with a warranty covering customer for the cost of repairs required
    within the first 12 month after purchase. Past experience suggests that 95% of goods sold
    will not require a warranty repair.

    Should a provision be made for warranty repairs?

    3. An entity has a policy of only carrying out work to rectify damage cause to the
    environment when it is required by local law to do so. For several years the entity has been
    operating an oil rig that causes such damage in a country that did not have legislation in
    place requiring any rectification.

    A new government has now been elected in that country and at the reporting date, has just
    brought in legislation requiring rectification of environmental damage. The legislation will
    have retrospective effect.

    Required.

    Explain whether a provision should be recognized.

    4. CEG has ten year left to run on the lease of property that it has recently vacated. The
    present value of the future rentals at the reporting date is $50,000. The cost of termination
    the lease early is 55,000.

    How should the above scenario be accounted for?

    5. On 14 June 20X2 a decision is made by the board of directors of KCM to close down a
    division and a detail plan is drawn up. At the year end of 30 June 20X2, no announcement
    has been made in respect of the closure and no steps have been taken to implement the
    decision. The expected costs of closing the division are $750,000.

    Should a provision be made for the expected costs of closing the division?
    6. Entity A is suing entity B in respect of losses sustained from faulty goods supplied by
    entity B. Entity A’s lawyers are unwilling to state the likelihood of the claim being
    successful.
    Entity B’s lawyers have told entity B to expect to have to pay damages but are unable at
    present to provide a reliable estimate of the amount payable.

    How would each entity account for the above scenario?

    7. ES operates is the oil and gas industry and publishes an environmental and social report to
    demonstrate its corporate social responsibility. It is partly responsible for a recent oil leak
    causing damage to local environment and is planning to voluntarily contribute to the costs
    of the clean-up, although it is under no legal obligation to do so. It anticipates the cost to be
    $500,000 but this is not certain.

    How should the above scenario be accounted for?

    You might also like