(1) Proviso Co issued a 1 year guarantee for faulty workmanship on a single item of specialist equipment that it delivered to its customer. At the company's year end, the company is being sued by the customer for refusing to replace or repair the item of equipment within the guarantee period, as Proviso believes the fault is not covered by the guarantee, but instead has arisen because of the customer not following the operating instructions. The company's lawyer has advised Proviso that it is more likely than not that they will be found liable. This would result in the company being forced to replace or repair the equipment plus pay court costs and a fine amounting to approximately $10,000. Based on past experience with similar items of equipment, the company estimates that there is a 70% chance that the central core would need to be replaced which would cost $40,000 and a 30% chance that the repair would only cost about $15,000. (2) The company also manufactures small items of equipment which it sells via a retail network. The company sold 12,000 items which also have a 1 year guarantee if the equipment fails. Based on past experience, 5% of items sold are returned for repair or replacement. In each case, one third of the items returned are able to be repaired at a cost of $50, while the remaining two thirds are scrapped and replaced. The manufacturing cost of a replacement item is $150. Required Discuss the accounting treatment of the above situations.

You have a contract to buy 300 metres of silk from China Co each month for $9 per metre. From each metre of silk you make one silk shirt. You also incur labour and other direct variable costs of $8 per shirt. Usually you can sell each shirt for $20 but in late July 20X8 the market price falls to $14. You are considering ceasing production since you think that the market may not improve. If you decide to cancel the silk purchase contract without 2 months' notice you must pay a cancellation penalty of $1,200 for each of the next two months. Required (a) Is there a present obligation at the period end 31 July 20X8? (b) What will appear in respect of the contract in your financial statements for the period ending 31 July 20X8?

A company purchases a deep discount bond with a par value of $500,000 on 1.1.X1 for proceeds of $440,000. Annual coupon payments of 5% are payable on 31 December. The entity incurred transaction costs of $5,867. The bond will be redeemed on 31.12.20X3 at par. The effective interest rate on the bond has been calculated at 9.3%. Required Show the profit or loss impact and carrying value of the bond for each of the years of the bond's life. (20X1 - 20X3).