Haeffner PLC is an accounting firm. Some of its clients face the following situations. For each, it is assumed that a reliable estimate can be made of any outflows expected:
1. On 9 December X1 the board of Shankar Inc. decided to close down its defense division, effective 1 June X2. On 20 December X1 a detailed plan for closing down the division was agreed by the board. The plan was further discussed and amended during a scheduled meeting of the Works Council on 21 December. In the following week, letters were sent to customers warning them to seek alternative sources of supply and redundancy notices were sent to the staff of the division who would not be offered other positions in the company. The accounting closing date of Shankar Inc. is 31 December.
2. The government introduces a number of changes in legislation, which will generate the need for Acme Amalgamated Enterprises Co. to retrain its security and quality control staff. At closing date, no retraining of staff has taken place.
3. Five people were severely injured in an industrial accident in which machinery and equipment sold by Lang Syne Enterprise Inc. was involved. The injured parties’ lawyers have started legal proceedings against Lang Syne Enterprise, seeking damages. Lang Syne disputes its liability. As of the date of approval for publication of the financial statements for the year ending 31 December X1, Lang Syne’s lawyers are of the opinion that the evidence will probably show that the enterprise will not be found liable. However, one year later, due to new developments in the case, the Lang Syne lawyers believe that it is probable the enterprise will be found at least partially liable.
Required
Analyze each situation and conclude about the necessity to record a provision or not.