Case 1: You are an expert who deals with the transactions related to provisions, contingent assets, contingent liabilities and intangible assets. For each of the scenario mentioned below provide with an appropriate solution with accounting treatment, calculations and necessary comments: (4x 2.5 marks each - 10 marks) 1. The company issues a one-year guarantee for an equipment that it sells to its customer. At the company's year end, the company is being sued by one of its customers for refusing to repair equipment within the guarantee period. The company believes that it has arisen because the customer incorrectly followed the instructions on using the equipment. The company lawyer has advised that it is more likely that they will be found liable. This would result in the company being forced to repair the equipment plus pay legal expenses amounting to approximately RO 20,000 2. There has been a change in the government regulations with regards to factory ventilation system at the end of the year. Such changes have to be made by the company in the coming 2 years will cost the company around RO 50,000. 3. The company is currently operating from an office premise whuch is taken on lease. But just before the end of the year the company was able to complete construction of its own premises and relocated its operations to a new office premises. The lease on the old factory continues for the next four years, it cannot be cancelled, and the company cannot rent the premises to another user. The unavoidable lease payments are estimated to be RO 50.000 4. The company acquired a local company named RTC for a purchase consideration of RO 120,000. Just before the acquisition the statement of financial position of RTC gave the following details: The Book values are as follows (amounts in RO 000) Property, plant and Equipment 130. Other tangible assets 30 Intangible assets 20. Other current assets 20. Equity 110 and Liabilities (Non-current & current) 90 The fair market values were as follows: Property, plant and Equipment would realize 75% of its book value. 1/34 of Other tangible assets are worthless. Intangible assets would realize 50% of its worth, the worth of Other current assets, Equity and Liabilities (Non-current & current) remains the same. Case 1: You are an expert who deals with the transactions related to provisions, contingent assets, contingent liabilities and intangible avels. For each of the scenario mentioned below provide with an appropriate solution with accounting treatment, calculations and necessary comments: (4 x 2.5 marks each = 10 marks) 4. The company issues a one-year guarantee for an equipment that it sells to its customer. At the company's year end, the company is being sued by one of its customers for refusing to repair equipment within the guarantee period. The company believes that it has arisen because the customer incorrectly followed the instructions on using the equipment. The company lawyer has advised that it is more likely that they will be found liable. This would result in the company being forced to repair the equipment plus pay legal expenses amounting to approximately RO 20,000. 2. There has been a change in the goverment regulations with regards to factory ventilation system at the end of the year. Such changes have to be made by the company in the coming 2 years will cost the company around RO 50,000 3. The company is currently operating from an office premise which is taken on lease. But just before the end of the year the company was able to complete construction of its own premises and relocated its operations to a new office premises. The lease on the old factory continues for the next four years, it cannot be cancelled, and the company cannot rent the premises to another user. The unavoidable lease payments are estimated to be RO 50.000 4. The company acquired a local company named RTC for a purchase consideration of RO 120,000. Just before the acquisition the statement of financial position of RTC gave the following details: The Book values are as follows (amounts in RO 000): Property, plant and Equipment 130; Other tangible assets 30; Intangible assets 20. Other current assets 20; Equity 110 and Liabilities (Non-current & current) 90 The fair market values were as follows: Property, plant and Equipment would realize 75% of its book value. 1/30 of other tangible assets are worthless. Intangible assets would realize 50% of its worth the worth of Other current assets, Equity and Liabilities (Non-current & current) remains the same