Acc206:

The following three scenarios are mutually exclusive. Assume that all the firms described in the scenarios adopt SFRSs.

(a) JHI Engineering Pte Ltd ("JHI") has been served a legal notice on 15 November 20Xl by the local building authority to fit smoke detection and sprinkling system in its factory on or before 31 July 20X2 failing which the company would face a fine of $20,000. The cost of fitting such a system is estimated at $190,000.

Examine and explain how JHI should treat this in its financial statements for the year ended 31 December 20X1. (8 marks)