Question Tag: Contingent Liabilities

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CR – Nov 2024 – L3 – Q3a – Share-Based Payment and Contingent Liabilities

Accounting for share-based payments and contingent liabilities in financial statements.

Question

(i) Share-Based Payment

Pee Manka PLC (PM), a hyper-growing firm in Ghana, prepares its financial statements on 31 December.

The following information is relevant:

The financial statements are authorised for issue on 31 March. On 31 December 2021, PM issued share options to seven (7) of its senior executives, giving each executive the option to purchase 2 million shares at GH¢6.50 per share. The fair value of each option at that date was GH¢4.00. The exercise of the share options was conditional on the completion of two-years’ service from 31 December 2021.

The company’s share price on subsequent dates was as follows:

Date	Share Price (GH¢)
31 December 2022	13.50
31 December 2023	17.50

On 31 March 2023, after the 2022 financial statements were authorised for issue, PM’s Chief Finance Officer, one of the seven executives, unexpectedly resigned from her position in the company.
On 30 April 2023 another executive, Mrs. Torsah, was dismissed.
The five remaining executives exercised their options on 31 December 2023.

Required:

In line with IFRS 2: Share-Based Payment, recommend how the above scenario would have been dealt with in the financial statements of PM for the year ended 31 December 2023. (6 marks)

(ii) Contingent Liabilities and Share-Based Payment

Mrs. Torsah, who was dismissed, immediately instigated legal proceedings against PM, and it was probable, on the 28 February 2024, that she would be deemed to have completed the two-year qualifying period of her share option agreement.
Legal advice at that time was that she was also likely to be awarded GH¢3.5 million in compensation, and that it was possible that this could rise to GH¢5.8 million.

Required:

In line with IFRS 2: Share-Based Payment and IAS 37: Provisions, Contingent Liabilities and Contingent Assets, explain how the above scenario would impact your results in (i) above.

Answer

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Tags: Contingent Liabilities, Employee Benefits, IAS 37, IFRS 2, Legal claims, Share Options
Level: Level 3

Topic: IAS 37: Provisions, Contingent Liabilities and Contingent Assets, IFRS 2: Share-Based Payments
Series: Nov 2024

FR – Nov 2024 – L2 – Q2b – Events After the Reporting Period

Accounting treatment of a court ruling after the reporting period and its impact on Mulba LTD’s financial statements.

Question

As a Trainee Financial Accountant working for Mulba LTD, a technology business, you have been asked by the Financial Controller to provide guidance on how to account for a variety of transactions that took place after the company’s fiscal year ended on December 31, 2023.

Mulba LTD was sued by a customer who was dissatisfied with the quality of a product delivered in June 2023. The court case was heard in late October 2023, but the judgment was delivered on 8 January 2024, ruling in favor of Mulba LTD. The ruling awarded the company legal costs of GH¢20,000 to cover solicitor’s fees.

The legal costs were paid by the customer to Mulba LTD on 12 January 2024.

Mulba LTD was doubtful of winning the case and had previously made a provision in its financial statements for the year ended 31 December 2023 as follows:

Account	Debit (GH¢)	Credit (GH¢)
Legal Fees – Administrative Expenses	25,000	–
Cost of Sales	35,000	–
Provisions – Current Liabilities	–	60,000

Required:
In accordance with IAS 10: Events after the Reporting Period, advise the management of Mulba LTD on the proper accounting treatment of the above issue to ensure that the financial statements are prepared in compliance with IFRS.

Answer

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Tags: Adjusting Events, Contingent Liabilities, Financial Statements, IAS 10, Legal Provisions, Non-adjusting Events, Provisions
Level: Level 2

Topic: Events After the Reporting Period (IAS 10)
Series: Nov 2024

FR – Nov 2024 – L2 – Q2a – Provisions and Contingent Liabilities

Determining the correct accounting treatment for warranty obligations and legal provisions in Kamara LTD’s financial statements.

Question

Kamara LTD manufactures and sells health equipment and has a financial year-end of March 2024. It offers a one-year guarantee for equipment supplied directly to clients. One of the company’s clients is suing the business at the financial year-end for failing to fix equipment within the guarantee period. The company argues that the issue is due to the client disregarding usage instructions, and Kamara LTD believes it is not liable.

Kamara LTD’s lawyer has advised that it is more likely than not that the company will not be found liable. If found liable, the company is estimated to incur legal expenses of approximately GH¢24,000.

Kamara LTD also manufactures another line of equipment sold to wholesalers. During the financial year, it sold 3,200 items of this equipment, which come with a one-year repair guarantee. Based on past experience, 10% of items sold are returned for repairs. Of these returns:

70% require minor repairs at a cost of GH¢64 per item.
30% require significant repairs at a cost of GH¢200 per item.

Required:
Determine the correct accounting treatment to deal with the above issues in the books of Kamara LTD for the year ended 31 March 2024.

Answer

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Tags: Accounting Treatment, Contingent Liabilities, Expected Value Calculation, IAS 37, Legal Expenses, Provisions, Warranty Obligations
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: Nov 2024

CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Discuss how the environmental liability for LALUPON Plc, arising from hazardous pollution, should be accounted for in its financial statements.

Question

LALUPON Plc owns a piece of land in a residential area. PONJEB Ltd has leased the piece of land from LALUPON Plc and is using it to store and dispense gas. The Federal government has announced its intention to enact environmental legislation requiring property owners to accept liability for environmental pollution. As a result, LALUPON Plc introduced a hazardous policy and has begun to apply the policy to its properties.

LALUPON Plc has had a report of a gas leakage and subsequent fire outbreak which damaged surrounding properties, but no life was lost. LALUPON Plc has no right of recourse against PONJEB Ltd or its insurance company for the clean-up and compensations to owners of properties destroyed. At April 30, 2014, it is virtually certain that draft legislation requiring a clean-up of the land and payment of compensations to victims will be enacted.

Required:
Discuss how the above events should be accounted for in the financial statements of LALUPON Plc.

Answer

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Tags: Contingent Liabilities, Environmental Liability, IAS 37, Land Pollution, Legislation, Provisions
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

AAA – May 2021 – L3 – Q6 – Review of Subsequent Events and Going Concern Assumptions

Evaluation of going concern issues at Wazobia Nigeria Limited and audit procedures to address identified risks.

Question

Wazobia Nigeria Limited is a manufacturer of corrugated zinc roofs. Due to the economic recession, revenue continued to decline each year for the past three years. You are aware that the company had only N300,000 in cash at the year end. Extracts from the draft financial statements and other relevant information are given below.

Additional information:
(i) The bank loan was obtained in 2016 when the company started recording losses. The collateral for the loan is a fixed and floating charge on the assets of the company to the tune of the loan balance. The first tranche of repayment of the loan is due in 2019 and the amount repayable is N300 million.

(ii) Wazobia renegotiated its credit line with a major supplier and extended payment terms from 60 days to 90 days in order to improve working capital.

(iii) The terms for accessing the undrawn facilities stipulate that the company must meet certain covenants, including that interest cover is maintained at 2:1 and the ratio of bank loan to total assets does not exceed 1:1.

(iv) The contingent liability relates to litigation against the company by one of its customers for an alleged breach of contract to supply roofing sheets based on agreed specifications.

Required:
(a) Identify and explain the matters which may cast significant doubt on the company’s ability to continue as a going concern in the foreseeable future. (10 Marks)
(b) Recommend the appropriate audit procedures to be performed to adequately address the going concern matters identified. (10 Marks)

Answer

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Tags: Audit Procedures, Bank Loan, Contingent Liabilities, Financial Stress, Going Concern
Level: Level 3

CR – May 2021 – L3 – Q5a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Define provisions and discuss their misuse in creative accounting.

Question

International Accounting Standard (IAS) 37 on Provisions, Contingent Liabilities, and Contingent Assets sets out the principles of accounting for these items. The inappropriate use of provisions has been an area where companies have been accused of manipulating financial statements and engaging in creative accounting.

Required:

What is provisions, and how is it employed by management to engage in creative accounting? (7 Marks)

Answer

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Tags: Contingent Liabilities, Creative Accounting, IAS 37, Provisions
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

CR – Nov 2021 – L3 – Q4 – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Guidance on presenting litigation, lease contract, and brand valuation in Fidipote PLC’s financial statements.

Question

You are the Financial Controller of Fidipote PLC, a bottling company with diverse products. The accountant responsible for preparing the 2020 annual financial statements is considering the accounting treatment of the following and has approached you for guidance:

a. On December 31, 2020, Fidipote PLC has a litigation proceeding involving a customer claiming damages in the sum of ₦50 million because she had allegedly been injured when drinking one of the company’s products. She had claimed that the company bottled a sharp object inside the content of the product which she swallowed and had to be operated upon in order to remove the object. Fidipote PLC is disputing the claim, maintaining that any injury was due solely to negligence on the part of the customer. As at December 31, 2020, the case was yet to be decided.
(8 Marks)

b. Fidipote PLC signed a ten-year lease agreement on a property requiring an annual payment of ₦5 million in advance on January 1, 2016. The property was used over the years as a Cinema Hall. As a result of the COVID-19 pandemic and the lockdown during 2020, the consequent long closure of the hall made patronage of cinema shows financially unsustainable. Fidipote PLC discovered that it has no further use of the building. It is not possible to sub-lease the building to another tenant, and remodeling cannot be done due to certain provisions of the lease agreement. As at December 31, 2020, the present value cost of outstanding lease installments amounted to ₦22.5 million.
(6 Marks)

c. The Managing Director made a proposal that the Fidipote brand name is unique and of significant market persuasion and should, therefore, be included as an asset in the financial statements. Due diligence, including market research by a certified consultant, has been done on this proposal. A valuation of ₦250 million was determined to be included in the financial statements as at December 31, 2020.
(6 Marks)

Required:
Explain how the above information, a to c, should be presented in the financial statements of Fidipote PLC for the year ended December 31, 2020.

Answer

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Tags: Brand Valuation, Contingent Liabilities, Intangible Assets, Lease Obligations, Litigation, Onerous Contracts
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

CR – Nov 2023 – L3 – SC – Q7 – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Evaluate Roman Limited's recognition of provision for emission reduction costs, compute the provision amounts, and explain the profit or loss components.

Question

Roman Limited prepares its financial statements in accordance with International Accounting Standards. On March 16, 2017, Roman Limited made a public announcement of a decision to reduce the level of emission of harmful chemicals from its factories. The average useful life of the factories on March 31, 2017 was 25 years. The depreciation of the factories is computed on a straight-line basis and charged to cost of sales. The directors formulated the proposal for emission reduction following an agreement in principle earlier in the year.

The directors prepared detailed estimates of the costs of their proposals, showing the following expenditures:

N60 million on March 31, 2018
N60 million on March 31, 2019
N80 million on March 31, 2020

All estimates were for actual anticipated cash payments. No contracts were entered into until after April 1, 2017. The estimate proved accurate regarding the expenditure due on March 31, 2018. When the directors decided to proceed with this project, they used discounted cash flow techniques to appraise the proposed investment, with an annual discount rate of 8%. The company has a reputation for fulfilling its financial commitments after it has publicly announced them. Roman Limited has made a provision for the expected costs of its proposal in the financial statements for the year ended March 31, 2017.

In accordance with the provisions of IAS 37 – Provisions, Contingent Liabilities, and Contingent Assets:

Required:
a. Explain the decision of the directors of Roman Limited to recognize the provision in the statement of financial position as at March 31, 2017.
(6 Marks)

b. Compute the appropriate provisions in the statement of financial position in respect of the proposed expenditure at March 31, 2017, and March 31, 2018.
(4 Marks)

Compute the TWO components of the charge to the statement of profit or loss in respect of the proposal for the year ended March 31, 2018. You should explain how each component arises and identify where in the statement of profit or loss each component is reported.
(5 Marks)

(Total 15 Marks)

Answer

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Tags: Contingent Liabilities, Depreciation, Discounted Cash Flow, Emission Reduction, Environmental Commitment, IAS 37, Provisions
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)
Series: NOV 2023

CR – Nov 2017 – L3 – Q6 – Impairment of Assets (IAS 36)

Provide advice on provisions and disclosures for Eko Exports Limited’s financial statements based on events in 2016.

Question

The following information pertains to Eko Exports Limited (EEL) for the financial year ended December 31, 2016:

A customer who owed ₦1 million was declared bankrupt after his warehouse was destroyed by fire on February 10, 2017. It is expected that the customer would be able to recover 50% of the loss from the insurance company.
An employee of EEL forged the signatures of directors and made cash withdrawals of ₦7.5 million from the bank. Of these, ₦1.5 million were withdrawn before December 31, 2016. Investigations revealed that an employee of the bank was also involved, and under a settlement arrangement, the bank paid 60% of the amount to EEL on January 27, 2017.
EEL has filed a claim against one of its vendors for supplying defective goods. EEL’s legal consultant is confident that damages of ₦1 million would be paid to EEL. The supplier has already reimbursed the actual cost of the defective goods.
A suit for infringement of patents, seeking damages of ₦2 million, was filed by a third party. EEL’s legal consultant is of the opinion that an unfavorable outcome is most likely. Based on past experience, he has advised that there is a 60% probability that the amount of damages would be ₦1 million and a 40% likelihood that the amount would be ₦1.5 million.

Required:
Advise EEL about the amount of provision that should be incorporated and the disclosures that are required to be made in the financial statements for the year ended December 31, 2016.
Total: 15 Marks

Answer

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Tags: Bankruptcy, Contingent Liabilities, Forgery, Legal claims, Provisions
Level: Level 3

Topic: Impairment of Assets (IAS 36)
Series: NOV 2017

FR – May 2015 – L2 – SB – Q7 – Consolidated Financial Statements (IFRS 10)

Identify and explain events after the reporting period, discuss treatment of liquidation and dividends under IAS 10.

Question

(a) There is usually a lead time between the end of an entity’s accounting year and when the financial statements are approved and signed off by the directors. In between this period, there are two types of events according to IAS 10-Events After The Reporting Period, which may require consideration when preparing financial statements.

Required:
Identify and explain these events and state how they are treated in the financial statements. (4 Marks)

(b) Company A is indebted to company B to the tune of N50,000,000. The financial year-end of company B is 30 June 2014. On 30 July 2014, company B received a letter from a liquidator advising it that company A has gone into insolvency. The letter revealed that company A ceased operations a month ago and that company B is only likely to receive a liquidation dividend of 20k for every naira owed by company A. It is the normal practice of company B’s board to approve the audited financial statements three months after the financial year end.

Required:

Explain how the above transactions should be treated in the financial statements of company B in accordance with IAS 10-Events After The Reporting Period. (2 Marks)
Prepare journal entries that are required to adjust company B’s financial statements to account for the above event. (2 Marks)
State what would have been the treatment in the financial statements assuming it was fire that destroyed company B’s factory building on 30 July 2014. (3 Marks)

(c) The directors of XYZ Plc declared that a dividend of N1 per ordinary share be paid to shareholders on the company’s register as at 15 April 2014. The financial statements were approved by the company’s board on 30 May 2014. The shareholders, at the company’s annual general meeting held on 15 June 2014, approved the payment of the dividend to eligible shareholders on 1 July 2014.

Required:
Explain how the dividend proposed by the Directors should be treated in the financial statements of XYZ Plc in accordance with IAS 10. (4 Marks)

Answer

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Tags: Adjusting Events, Contingent Liabilities, Dividends, Events After Reporting Period, Liquidation
Level: Level 2

Topic: Consolidated Financial Statements (IFRS 10)
Series: MAY 2015

CR – Nov 2024 – L3 – Q3a – Share-Based Payment and Contingent Liabilities

Accounting for share-based payments and contingent liabilities in financial statements.

Question

(i) Share-Based Payment

Pee Manka PLC (PM), a hyper-growing firm in Ghana, prepares its financial statements on 31 December.

The following information is relevant:

The financial statements are authorised for issue on 31 March. On 31 December 2021, PM issued share options to seven (7) of its senior executives, giving each executive the option to purchase 2 million shares at GH¢6.50 per share. The fair value of each option at that date was GH¢4.00. The exercise of the share options was conditional on the completion of two-years’ service from 31 December 2021.

The company’s share price on subsequent dates was as follows:

Date	Share Price (GH¢)
31 December 2022	13.50
31 December 2023	17.50

On 31 March 2023, after the 2022 financial statements were authorised for issue, PM’s Chief Finance Officer, one of the seven executives, unexpectedly resigned from her position in the company.
On 30 April 2023 another executive, Mrs. Torsah, was dismissed.
The five remaining executives exercised their options on 31 December 2023.

Required:

In line with IFRS 2: Share-Based Payment, recommend how the above scenario would have been dealt with in the financial statements of PM for the year ended 31 December 2023. (6 marks)

(ii) Contingent Liabilities and Share-Based Payment

Mrs. Torsah, who was dismissed, immediately instigated legal proceedings against PM, and it was probable, on the 28 February 2024, that she would be deemed to have completed the two-year qualifying period of her share option agreement.
Legal advice at that time was that she was also likely to be awarded GH¢3.5 million in compensation, and that it was possible that this could rise to GH¢5.8 million.

Required:

In line with IFRS 2: Share-Based Payment and IAS 37: Provisions, Contingent Liabilities and Contingent Assets, explain how the above scenario would impact your results in (i) above.

Answer

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Tags: Contingent Liabilities, Employee Benefits, IAS 37, IFRS 2, Legal claims, Share Options
Level: Level 3

Topic: IAS 37: Provisions, Contingent Liabilities and Contingent Assets, IFRS 2: Share-Based Payments
Series: Nov 2024

FR – Nov 2024 – L2 – Q2b – Events After the Reporting Period

Accounting treatment of a court ruling after the reporting period and its impact on Mulba LTD’s financial statements.

Question

The legal costs were paid by the customer to Mulba LTD on 12 January 2024.

Mulba LTD was doubtful of winning the case and had previously made a provision in its financial statements for the year ended 31 December 2023 as follows:

Account	Debit (GH¢)	Credit (GH¢)
Legal Fees – Administrative Expenses	25,000	–
Cost of Sales	35,000	–
Provisions – Current Liabilities	–	60,000

Answer

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Tags: Adjusting Events, Contingent Liabilities, Financial Statements, IAS 10, Legal Provisions, Non-adjusting Events, Provisions
Level: Level 2

Topic: Events After the Reporting Period (IAS 10)
Series: Nov 2024

FR – Nov 2024 – L2 – Q2a – Provisions and Contingent Liabilities

Determining the correct accounting treatment for warranty obligations and legal provisions in Kamara LTD’s financial statements.

Question

70% require minor repairs at a cost of GH¢64 per item.
30% require significant repairs at a cost of GH¢200 per item.

Required:
Determine the correct accounting treatment to deal with the above issues in the books of Kamara LTD for the year ended 31 March 2024.

Answer

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Tags: Accounting Treatment, Contingent Liabilities, Expected Value Calculation, IAS 37, Legal Expenses, Provisions, Warranty Obligations
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: Nov 2024

CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Discuss how the environmental liability for LALUPON Plc, arising from hazardous pollution, should be accounted for in its financial statements.

Question

Required:
Discuss how the above events should be accounted for in the financial statements of LALUPON Plc.

Answer

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Tags: Contingent Liabilities, Environmental Liability, IAS 37, Land Pollution, Legislation, Provisions
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

AAA – May 2021 – L3 – Q6 – Review of Subsequent Events and Going Concern Assumptions

Evaluation of going concern issues at Wazobia Nigeria Limited and audit procedures to address identified risks.

Question

(ii) Wazobia renegotiated its credit line with a major supplier and extended payment terms from 60 days to 90 days in order to improve working capital.

(iv) The contingent liability relates to litigation against the company by one of its customers for an alleged breach of contract to supply roofing sheets based on agreed specifications.

Answer

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Tags: Audit Procedures, Bank Loan, Contingent Liabilities, Financial Stress, Going Concern
Level: Level 3

CR – May 2021 – L3 – Q5a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Define provisions and discuss their misuse in creative accounting.

Question

Required:

What is provisions, and how is it employed by management to engage in creative accounting? (7 Marks)

Answer

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Tags: Contingent Liabilities, Creative Accounting, IAS 37, Provisions
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

CR – Nov 2021 – L3 – Q4 – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Guidance on presenting litigation, lease contract, and brand valuation in Fidipote PLC’s financial statements.

Question

Required:
Explain how the above information, a to c, should be presented in the financial statements of Fidipote PLC for the year ended December 31, 2020.

Answer

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Tags: Brand Valuation, Contingent Liabilities, Intangible Assets, Lease Obligations, Litigation, Onerous Contracts
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

CR – Nov 2023 – L3 – SC – Q7 – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Evaluate Roman Limited's recognition of provision for emission reduction costs, compute the provision amounts, and explain the profit or loss components.

Question

The directors prepared detailed estimates of the costs of their proposals, showing the following expenditures:

N60 million on March 31, 2018
N60 million on March 31, 2019
N80 million on March 31, 2020

In accordance with the provisions of IAS 37 – Provisions, Contingent Liabilities, and Contingent Assets:

Required:
a. Explain the decision of the directors of Roman Limited to recognize the provision in the statement of financial position as at March 31, 2017.
(6 Marks)

b. Compute the appropriate provisions in the statement of financial position in respect of the proposed expenditure at March 31, 2017, and March 31, 2018.
(4 Marks)

(Total 15 Marks)

Answer

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Tags: Contingent Liabilities, Depreciation, Discounted Cash Flow, Emission Reduction, Environmental Commitment, IAS 37, Provisions
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)
Series: NOV 2023

CR – Nov 2017 – L3 – Q6 – Impairment of Assets (IAS 36)

Provide advice on provisions and disclosures for Eko Exports Limited’s financial statements based on events in 2016.

Question

The following information pertains to Eko Exports Limited (EEL) for the financial year ended December 31, 2016:

A customer who owed ₦1 million was declared bankrupt after his warehouse was destroyed by fire on February 10, 2017. It is expected that the customer would be able to recover 50% of the loss from the insurance company.
An employee of EEL forged the signatures of directors and made cash withdrawals of ₦7.5 million from the bank. Of these, ₦1.5 million were withdrawn before December 31, 2016. Investigations revealed that an employee of the bank was also involved, and under a settlement arrangement, the bank paid 60% of the amount to EEL on January 27, 2017.
EEL has filed a claim against one of its vendors for supplying defective goods. EEL’s legal consultant is confident that damages of ₦1 million would be paid to EEL. The supplier has already reimbursed the actual cost of the defective goods.
A suit for infringement of patents, seeking damages of ₦2 million, was filed by a third party. EEL’s legal consultant is of the opinion that an unfavorable outcome is most likely. Based on past experience, he has advised that there is a 60% probability that the amount of damages would be ₦1 million and a 40% likelihood that the amount would be ₦1.5 million.

Answer

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Tags: Bankruptcy, Contingent Liabilities, Forgery, Legal claims, Provisions
Level: Level 3

Topic: Impairment of Assets (IAS 36)
Series: NOV 2017

FR – May 2015 – L2 – SB – Q7 – Consolidated Financial Statements (IFRS 10)

Identify and explain events after the reporting period, discuss treatment of liquidation and dividends under IAS 10.

Question

Required:
Identify and explain these events and state how they are treated in the financial statements. (4 Marks)

Required:

Explain how the above transactions should be treated in the financial statements of company B in accordance with IAS 10-Events After The Reporting Period. (2 Marks)
Prepare journal entries that are required to adjust company B’s financial statements to account for the above event. (2 Marks)
State what would have been the treatment in the financial statements assuming it was fire that destroyed company B’s factory building on 30 July 2014. (3 Marks)

Required:
Explain how the dividend proposed by the Directors should be treated in the financial statements of XYZ Plc in accordance with IAS 10. (4 Marks)

Answer

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Tags: Adjusting Events, Contingent Liabilities, Dividends, Events After Reporting Period, Liquidation
Level: Level 2

Topic: Consolidated Financial Statements (IFRS 10)
Series: MAY 2015

Question Tag: Contingent Liabilities

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CR – Nov 2024 – L3 – Q3a – Share-Based Payment and Contingent Liabilities

Accounting for share-based payments and contingent liabilities in financial statements.

(i) Share-Based Payment

Required:

(ii) Contingent Liabilities and Share-Based Payment

Required:

FR – Nov 2024 – L2 – Q2b – Events After the Reporting Period

Accounting treatment of a court ruling after the reporting period and its impact on Mulba LTD’s financial statements.

FR – Nov 2024 – L2 – Q2a – Provisions and Contingent Liabilities

Determining the correct accounting treatment for warranty obligations and legal provisions in Kamara LTD’s financial statements.

CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Discuss how the environmental liability for LALUPON Plc, arising from hazardous pollution, should be accounted for in its financial statements.

AAA – May 2021 – L3 – Q6 – Review of Subsequent Events and Going Concern Assumptions

Evaluation of going concern issues at Wazobia Nigeria Limited and audit procedures to address identified risks.

CR – May 2021 – L3 – Q5a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Define provisions and discuss their misuse in creative accounting.

Required:

CR – Nov 2021 – L3 – Q4 – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Guidance on presenting litigation, lease contract, and brand valuation in Fidipote PLC’s financial statements.

CR – Nov 2023 – L3 – SC – Q7 – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Evaluate Roman Limited's recognition of provision for emission reduction costs, compute the provision amounts, and explain the profit or loss components.

CR – Nov 2017 – L3 – Q6 – Impairment of Assets (IAS 36)

Provide advice on provisions and disclosures for Eko Exports Limited’s financial statements based on events in 2016.

FR – May 2015 – L2 – SB – Q7 – Consolidated Financial Statements (IFRS 10)

Identify and explain events after the reporting period, discuss treatment of liquidation and dividends under IAS 10.

CR – Nov 2024 – L3 – Q3a – Share-Based Payment and Contingent Liabilities

Accounting for share-based payments and contingent liabilities in financial statements.

(i) Share-Based Payment

Required:

(ii) Contingent Liabilities and Share-Based Payment

Required:

FR – Nov 2024 – L2 – Q2b – Events After the Reporting Period

Accounting treatment of a court ruling after the reporting period and its impact on Mulba LTD’s financial statements.

FR – Nov 2024 – L2 – Q2a – Provisions and Contingent Liabilities

Determining the correct accounting treatment for warranty obligations and legal provisions in Kamara LTD’s financial statements.

CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Discuss how the environmental liability for LALUPON Plc, arising from hazardous pollution, should be accounted for in its financial statements.

AAA – May 2021 – L3 – Q6 – Review of Subsequent Events and Going Concern Assumptions

Evaluation of going concern issues at Wazobia Nigeria Limited and audit procedures to address identified risks.

CR – May 2021 – L3 – Q5a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Define provisions and discuss their misuse in creative accounting.

Required:

CR – Nov 2021 – L3 – Q4 – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Guidance on presenting litigation, lease contract, and brand valuation in Fidipote PLC’s financial statements.

CR – Nov 2023 – L3 – SC – Q7 – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Evaluate Roman Limited's recognition of provision for emission reduction costs, compute the provision amounts, and explain the profit or loss components.

CR – Nov 2017 – L3 – Q6 – Impairment of Assets (IAS 36)

Provide advice on provisions and disclosures for Eko Exports Limited’s financial statements based on events in 2016.

FR – May 2015 – L2 – SB – Q7 – Consolidated Financial Statements (IFRS 10)

Identify and explain events after the reporting period, discuss treatment of liquidation and dividends under IAS 10.

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