Mr. Imran - a newly hired manager accounts of Alpha limited is working closely with the company auditors as the year closing is on. During this financial audit, Imran has found the following matters to be settled for reporting in to the yearly accounts:
a. The company gives warranties at the time of sales to customers to repair manufacturing defects free of charge within the one year of the sales. The company accounts carry an estimated cost of such repairs of Rs. 1 million. During the year one of the customers has filed a law suit against the damages claim of Rs. 100,000. The company’s legal counsel is expecting unfavorable decision for Rs. 75,000 against the claim of the customer.
b. Although no legislation exists for environment/physical cleanup but the company has an established gesture for cleaning up the front road side where the factory has been installed for the last 10 years. According to the company’s estimates, an amount of Rs. 500,000 is required for the current year.
Briefly discuss as per IAS 37 on Provisions, Contingent Liabilities and Contingent Assets, as how the above cases will be dealt in the company’s financial statements for the year under review. Support your answers with reasons as per the related IAS.
1. Your discussion must be based on logical facts.
2. Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
3. Obnoxious or ignoble answer should be strictly avoided.
4. Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.
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