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Apple plc is a manufacturing company and its year close at 31 December. On October 2020, Apple plc was notified that: i. An ex-employee had
Apple plc is a manufacturing company and its year close at 31 December. On October 2020, Apple plc was notified that: i. An ex-employee had started court proceedings against them for unfair dismissal. Legal advice was that there was an 80% chance that Apple plc would lose the case and would need to pay an estimated 1m on 31 December 2021. Apple plc has a cost of capital of 10% per annum. Furthermore, Apple plc has the following legal claims outstanding: ii. A legal action against Apple plc Ltd claiming compensation for 200,000, filed in September 2020. Its lawyer advised that it is probable that the liability will materialize. iii. A legal action taken in November 2020 by Apple plc against another entity claiming damages of 300,000. Its lawyer informed that there is a good probability that it will win the case. Required: a. With reference to IAS 37, explain how issues i., ii. and iii. should be dealt within the financial statements as on 31 December 2020. b. Outline how an accountant may take advantage of freedoms to apply judgement in the context of 'IAS 37 Provisions, Contingent Liabilities and Contingent Assets'. You should illustrate with examples from the literature
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