Provision – NBC Institute

CR – Nov 2024 – L3 – Q2b – Accounting for Legal Claims

Assess and account for a legal claim against Agropah PLC under IAS 37.

Question

ropah PLC (Agropah) prepares its financial statements to 30 June and usually authorizes them for issue on 25 August.

On 15 July 2024, Agropah received notice of a legal claim made by Odametey, a customer, for loss of profits allegedly due to the supply of faulty goods by Agropah on 30 April 2024. The amount claimed was GH¢5 million.

The directors of Agropah have estimated the following possible outcomes in respect of this legal claim:

28% chance that the claim will not succeed.
45% chance that the claim will succeed, and Odametey will be awarded GH¢3.2 million.
27% chance that the claim will succeed, and Odametey will be awarded GH¢5 million.

Required:

In line with IAS 37: Provisions, Contingent Liabilities & Contingent Assets, explain how this legal claim should be accounted for and reported in the financial statements of Agropah for the year ended 30 June 2024.

Answer

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Tags: Contingent Liability, Financial Reporting, IAS 10, IAS 37, Legal Claim, Provision
Level: Level 3

CR – Nov 2020 – L3 – Q2c – Provision and Insurance Claim

Determine the recognition and treatment of a provision and insurance claim under IAS 37.

Question

A company is being sued by a customer in respect of some products supplied which the customer claims are faulty. The customer is suing for GH¢220,000 plus damages. Court costs are likely to amount to GH¢40,000. The company’s lawyer has advised that there is an 80% chance that the case will be lost and that the full amount claimed by the customer will become payable against the company.

The company is fully insured, and the lawyer has advised that the insurance policy covers the event and should be utilized.

Required:
Determine the amount that should be recognized as a provision and charged to profit or loss and determine the treatment of the insurance claim.

Answer

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Tags: Contingent Asset, Insurance Claim, Legal Cases, Provision
Level: Level 3

Topic: IAS 37: Provisions, Contingent Liabilities and Contingent Assets
Series: NOV 2020

FR – Nov 2019 – L2 – Q2a – Financial Reporting Standards and Their Applications

Treatment of under-provision of tax for Daaho Ltd for the year ending 31 August 2019. Question:

Question

Daaho Ltd (Daaho) manufactures and distributes security equipment. Daaho prepares financial statements in accordance with International Financial Reporting Standards (IFRS) up to 31 August each year.

On 31 August 2019, the taxation liability account in the books of Daaho Ltd showed a debit balance of GH¢17,500 after paying the 2018 liability. The estimated liability for 2019 is GH¢84,500 and no entry has yet been made to record this.

Required:
Explain the appropriate accounting treatment of the above transaction for the year ending 31 August 2019.
(3 marks)

Answer

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Tags: Current Liabilities, Income Tax, Provision, Taxation Liability

Topic: Financial Reporting Standards and Their Applications
Series: NOV 2019

CR – Dec 2022 – L3 – Q3a – IAS 36: Impairment of Assets ,IAS 37: Provisions, contingent liabilities and contingent assets

Determine the appropriate accounting treatment for Samed Ltd's production facility impairment.

Question

Samed Ltd is a Ghanaian company located in the Northern Region that manufactures goods such as washing machines, tumble dryers, and dishwashers. The manufacturing industry in Ghana is highly competitive with many products on the market. Samed Ltd’s current accounting year-end is 31 December 2022.

Samed Ltd has a production facility that started showing serious cracks and signs of possible leakage since July 2022. It is probable that Samed Ltd will have to undertake major repairs sometime during 2023 to rectify the problem. Samed Ltd does not have an insurance policy covering the production facility. The Chief Operating Officer has refused to disclose the issue in the financial statements for the year ended 31 December 2022, and no repair costs have yet been undertaken, although he is aware that this is contrary to International Financial Reporting Standards (IFRSs). According to the Chief Operating Officer, he does not believe that the need for major repairs on the production facility is an indicator of impairment. Furthermore, the Chief Operating Officer argues that no provision for the repair to the production facility should be made as there is no legal or constructive obligation to repair the facility.

Samed Ltd has a revaluation policy for property, plant, and equipment, and there is a balance on the revaluation surplus of GH¢20 million in the financial statements for the year ended 31 December 2022. However, this balance does not relate to the production facility, but the Chief Operating Officer is of the opinion that this surplus can be used for any future loss arising from the collapse of the production facility.

Required:
In accordance with relevant IFRSs, discuss the accounting treatment which Samed Ltd should adopt to account for the above transaction in its financial statements for the year ended 31 December 2022.
(5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash-Generating Unit, Contingent Liabilities, Impairment, Production Facility, Provision, Revaluation Surplus
Level: Level 3

Topic: contingent liabilities and contingent assets, IAS 36: Impairment of assets
Series: DEC 2022

AAA – Nov 2017 – L3 – Q1a – Planning, Audit Evidence

Analyze the materiality of management's plans to discontinue sales of ladies wear and the provision for redundant employees.

Question

The draft accounts of your client Good Days Ltd., a shopping mall for the year ended 31 December 2016 showed the following:

	2016 (GH¢ million)	2015 (GH¢ million)
Revenue	84.40	83.60
Profit before tax	5.00	4.40
Total Assets	75.00	46.80

In December 2016, management announced plans to stop the sales of ladies wear from the end of the month. These sales amounted to GH¢1.4 million for the year ended 31 December 2016 (2015 GH¢1.6 million). A provision of GH¢0.6 million has been made at 31 December 2016 for the compensation of redundant employees who are mainly sales girls.

Required:
Comment on the materiality of these two plans.

Note: The following materiality levels are to be used as benchmarks:

Value	%
Profit Before Tax	5
Gross Profit	½ – 1
Revenue	½ – 1
Total Assets	1 – 2
Net Assets	2 – 5
Profit After Tax	5 – 12

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial Statements, Materiality, Provision, Revenue
Level: Level 3

Topic: Audit evidence, Planning
Series: NOV 2017

CR – Nov 2024 – L3 – Q2b – Accounting for Legal Claims

Assess and account for a legal claim against Agropah PLC under IAS 37.

Question

ropah PLC (Agropah) prepares its financial statements to 30 June and usually authorizes them for issue on 25 August.

The directors of Agropah have estimated the following possible outcomes in respect of this legal claim:

28% chance that the claim will not succeed.
45% chance that the claim will succeed, and Odametey will be awarded GH¢3.2 million.
27% chance that the claim will succeed, and Odametey will be awarded GH¢5 million.

Required:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contingent Liability, Financial Reporting, IAS 10, IAS 37, Legal Claim, Provision
Level: Level 3

CR – Nov 2020 – L3 – Q2c – Provision and Insurance Claim

Determine the recognition and treatment of a provision and insurance claim under IAS 37.

Question

The company is fully insured, and the lawyer has advised that the insurance policy covers the event and should be utilized.

Required:
Determine the amount that should be recognized as a provision and charged to profit or loss and determine the treatment of the insurance claim.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contingent Asset, Insurance Claim, Legal Cases, Provision
Level: Level 3

Topic: IAS 37: Provisions, Contingent Liabilities and Contingent Assets
Series: NOV 2020

FR – Nov 2019 – L2 – Q2a – Financial Reporting Standards and Their Applications

Treatment of under-provision of tax for Daaho Ltd for the year ending 31 August 2019. Question:

Question

Daaho Ltd (Daaho) manufactures and distributes security equipment. Daaho prepares financial statements in accordance with International Financial Reporting Standards (IFRS) up to 31 August each year.

Required:
Explain the appropriate accounting treatment of the above transaction for the year ending 31 August 2019.
(3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Current Liabilities, Income Tax, Provision, Taxation Liability

Topic: Financial Reporting Standards and Their Applications
Series: NOV 2019

CR – Dec 2022 – L3 – Q3a – IAS 36: Impairment of Assets ,IAS 37: Provisions, contingent liabilities and contingent assets

Determine the appropriate accounting treatment for Samed Ltd's production facility impairment.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash-Generating Unit, Contingent Liabilities, Impairment, Production Facility, Provision, Revaluation Surplus
Level: Level 3

Topic: contingent liabilities and contingent assets, IAS 36: Impairment of assets
Series: DEC 2022

AAA – Nov 2017 – L3 – Q1a – Planning, Audit Evidence

Analyze the materiality of management's plans to discontinue sales of ladies wear and the provision for redundant employees.

Question

The draft accounts of your client Good Days Ltd., a shopping mall for the year ended 31 December 2016 showed the following:

	2016 (GH¢ million)	2015 (GH¢ million)
Revenue	84.40	83.60
Profit before tax	5.00	4.40
Total Assets	75.00	46.80

Required:
Comment on the materiality of these two plans.

Note: The following materiality levels are to be used as benchmarks:

Value	%
Profit Before Tax	5
Gross Profit	½ – 1
Revenue	½ – 1
Total Assets	1 – 2
Net Assets	2 – 5
Profit After Tax	5 – 12

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial Statements, Materiality, Provision, Revenue
Level: Level 3

Topic: Audit evidence, Planning
Series: NOV 2017

Question Tag: Provision

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CR – Nov 2024 – L3 – Q2b – Accounting for Legal Claims

Assess and account for a legal claim against Agropah PLC under IAS 37.

Required:

CR – Nov 2020 – L3 – Q2c – Provision and Insurance Claim

Determine the recognition and treatment of a provision and insurance claim under IAS 37.

FR – Nov 2019 – L2 – Q2a – Financial Reporting Standards and Their Applications

Treatment of under-provision of tax for Daaho Ltd for the year ending 31 August 2019. Question:

CR – Dec 2022 – L3 – Q3a – IAS 36: Impairment of Assets ,IAS 37: Provisions, contingent liabilities and contingent assets

Determine the appropriate accounting treatment for Samed Ltd's production facility impairment.

AAA – Nov 2017 – L3 – Q1a – Planning, Audit Evidence

Analyze the materiality of management's plans to discontinue sales of ladies wear and the provision for redundant employees.

CR – Nov 2024 – L3 – Q2b – Accounting for Legal Claims

Assess and account for a legal claim against Agropah PLC under IAS 37.

Required:

CR – Nov 2020 – L3 – Q2c – Provision and Insurance Claim

Determine the recognition and treatment of a provision and insurance claim under IAS 37.

FR – Nov 2019 – L2 – Q2a – Financial Reporting Standards and Their Applications

Treatment of under-provision of tax for Daaho Ltd for the year ending 31 August 2019. Question:

CR – Dec 2022 – L3 – Q3a – IAS 36: Impairment of Assets ,IAS 37: Provisions, contingent liabilities and contingent assets

Determine the appropriate accounting treatment for Samed Ltd's production facility impairment.

AAA – Nov 2017 – L3 – Q1a – Planning, Audit Evidence

Analyze the materiality of management's plans to discontinue sales of ladies wear and the provision for redundant employees.

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CR – Nov 2024 – L3 – Q2b – Accounting for Legal Claims

Assess and account for a legal claim against Agropah PLC under IAS 37.

Required:

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CR – Nov 2020 – L3 – Q2c – Provision and Insurance Claim

Determine the recognition and treatment of a provision and insurance claim under IAS 37.

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FR – Nov 2019 – L2 – Q2a – Financial Reporting Standards and Their Applications

Treatment of under-provision of tax for Daaho Ltd for the year ending 31 August 2019. Question:

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CR – Dec 2022 – L3 – Q3a – IAS 36: Impairment of Assets ,IAS 37: Provisions, contingent liabilities and contingent assets

Determine the appropriate accounting treatment for Samed Ltd's production facility impairment.

You're reporting an error for "CR – Dec 2022 – L3 – Q3a – IAS 36: Impairment of Assets ,IAS 37: Provisions, contingent liabilities and contingent assets"

AAA – Nov 2017 – L3 – Q1a – Planning, Audit Evidence

Analyze the materiality of management's plans to discontinue sales of ladies wear and the provision for redundant employees.

You're reporting an error for "AAA – Nov 2017 – L3 – Q1a – Planning, Audit Evidence"

CR – Nov 2024 – L3 – Q2b – Accounting for Legal Claims

Assess and account for a legal claim against Agropah PLC under IAS 37.

Required:

You're reporting an error for "CR – Nov 2024 – L3 – Q2b – Accounting for Legal Claims"

CR – Nov 2020 – L3 – Q2c – Provision and Insurance Claim

Determine the recognition and treatment of a provision and insurance claim under IAS 37.

You're reporting an error for "CR – Nov 2020 – L3 – Q2c – Provision and Insurance Claim"

FR – Nov 2019 – L2 – Q2a – Financial Reporting Standards and Their Applications

Treatment of under-provision of tax for Daaho Ltd for the year ending 31 August 2019. Question:

You're reporting an error for "FR – Nov 2019 – L2 – Q2a – Financial Reporting Standards and Their Applications"

CR – Dec 2022 – L3 – Q3a – IAS 36: Impairment of Assets ,IAS 37: Provisions, contingent liabilities and contingent assets

Determine the appropriate accounting treatment for Samed Ltd's production facility impairment.

You're reporting an error for "CR – Dec 2022 – L3 – Q3a – IAS 36: Impairment of Assets ,IAS 37: Provisions, contingent liabilities and contingent assets"

AAA – Nov 2017 – L3 – Q1a – Planning, Audit Evidence

Analyze the materiality of management's plans to discontinue sales of ladies wear and the provision for redundant employees.

You're reporting an error for "AAA – Nov 2017 – L3 – Q1a – Planning, Audit Evidence"

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