5. In December 20x0, the board of directors of Entity A decides to give a 3-year warranty for all products manufactured by Entity A, including those sold before December 20X0. The law requires Entity A to give only a 2-year warranty and this is what Entity A has given so far. The policy of 3-year warranty is made public in January 20x1 through extensive advertising. Additionally, official terms and conditions are made available for download on entity's website. On 10 March 20x1, Entity A authorises its financial statements for the year ended 31 December 20x0. How should Entity A record a provision in its books of Dec 31 20X0 Entity A should make a provision basis the 3 year warrant as the fact has been advertised before issuance of its financial statements Entity A need to continue to make provisions only on the 2 year warrant it has been providing so far Entity A should make a provision on the basis of the 3 year warranty period on the basis of claims it has received till signing of accounts i.e. March 10 20X1 Entity A should make a provision estimate for the 3 year warranty rule and show the difference of 1 year of warrant provision as separate line it item in the financial statements to give its investors a better representation of the change in its warranty policy 2. Under the new legislation, XYZ is required to fit pollution monitors to its factories by 31 March 20X2. XYZ Co has not fitted pollution monitors yet. The Govt. will perform annual checks of pollution monitors and impose penalty for breach of the legislation. Should XYZ recognize any provision as of 31 December 20x12 No, the provision should not be recognized as of 31 December 20x1, because there is no present obligation arising from past event. Yes, the provision should be recognized as of 31 December 20X1 in amount of estimated cost of pollution monitors O Yes, the provision should be recognized as of 31 December 20xi in amount of estimated penalty for not installing the pollution monitors Yes, the provision should be recognized as of 31 December 20x1 for both the cost of pollution monitors and the penalty. 4. IAS 37 states that risks and uncertainty should be taken into account in reaching the best estimate of a provision. Which of the following statements is not true as regards IAS 37? IAS 37 sets out how to account for the credit risk of the entity O In the case of IAS 37, the risk adjustment would measure the amount that it would cost to be free of risk IAS 37 does not identify the nature of the risk adjustment O IAS 37 does not give any guidance on non- performance risk by the entity