Answer

l. During 2020. Jacks Corporation is the defendant in a breach of patent lawsuit. The lawyers believe that there is an 30% chance that the court will not dismiss the case and the entity will incur outflow of benets. Ifthe court rules in favor ofthe claimant. the lawyers believe that there is a 60% chance that the entity will be required to pay damages of P20001100 and a 40% chance that the entity will be required to pay damages of PLO-00.000. Other amounts of damages are unlikely. There is no indication that the claimant will settle out of court. The court is expected to rule in late December 2021. An 8% risk adjustment factor to the cash ows is considered appropriate to reect the uncertainties in the cash flow estimates. The appropriate discount rate is 12%. The present value of l at 12% for the period is .89. a. What is the amount of undiscounted cash flows for the provision? b. What is the measurement of provision on December 31. 2020? 2. JumpShip Corp. shipping entity. lost an entire shipload of cargo valued at P5.000.000 on a voyage to Australia. It is. however. covered by an insurance policy. According to the report of the investigator, the amount is collectible, subject to the deductible clause in the insurance policy. Before year-end. the shipping entity received a letter from the insurance entity that a check was in the mail for 90% of the claim. The international freight forwarding company that entrusted the shipping company with the delivery of the cargo overseas has tiled a lawsuit for P5.000.000. claiming the value of the cargo that was lost on high seas. and also consequential damages of P2.000.000 resulting from the delay. According to the legal counsel for the shipping entity, it is probable that the shipping entity would have to pay the P5,000,000. However. it is a remote possibility that it would have to pay the additional P2.000,000 claimed by the international freight forwarding entity. since this loss was specically excluded in the freight forwarding contract. a. Determine the amount of provision at year-end. Explain your answer. b. Should the company recognize a contein