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(c) The directors of Sheridan Berhad are preparing their financial statements for the year end 30 April 2017. They have asked your advice on
(c) The directors of Sheridan Berhad are preparing their financial statements for the year end 30 April 2017. They have asked your advice on the following issues. . On 14 April 2017 the directors announced a plan to close down their Nilai manufacturing division and relocate to Penang. They estimate the closure will incur costs of RM1.8 million in the year ended 30 April 2018 and propose that under the accrual's principle, the costs should be recognised in 2018. (4 marks) The company carried out a consultancy project which is currently the subject of legal action by the client who alleges Sheridan were negligent. Lawyers advise that it is probable that Sheridan will lose the case with a resulting cash outflow in 2018 for costs and damages estimated at RM600,000. The company carries professional indemnity insurance and are of the opinion that the costs and damages should be covered. However, the insurance company has not yet accepted the claim. (5 marks) The company has long had the practice of allowing retail customers to return goods within one month of purchase for a full refund, although they have no legal obligation to do this. In most cases the goods can be resold at full price. Experience shows that 0.1% of the sales value of all goods sold is lost due to this policy. Sales in April 2017 were RM20 million. Required: (4 marks) Give detailed advice on how each of these matters would be accounted for in the financial statements for the period to 30 April 2017, referring to the provisions of IAS37.
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