Case study

PAS 37 Provisions, Contingent Liabilities and Contingent Assets sets out the accounting treatment and disclosures for these transactions and events. The standard discusses general principles of recognition, measurement, and presentation as well as specific application guidance for certain issues. This guidance aims to assist preparers of financial statements in applying PAS 37.

The following situation has arisen during the preparation of the draft financial statements of Haywood Company for fiscal year ended July 31, 20X7:

On August 1, 20X6, Haywood Plc acquired a nuclear power plant at a cost of P200 million. Part of the arrangement was that the plant be dismantled and the site restored after its useful economic life of 20 years had passed. The cost of restoration was estimated on August 1,20X6, after discounting to present value, to be P40 million. This amount reflected an appropriate discount rate of 6%, (75% of this estimate related to the dismantling of the plant, and 25% to the removal of waste fuel). At July 31, 20X7, due to regulatory and other obstacles, no power had yet been produced, hence no waste fuel had been generated.

Requirement

1. Discuss the accounting treatment in relation to provisions, contingent liabilities and contingent assets required by PAS 37. (8 points)

2, In the case above, set out the appropriate accounting treatment as at July 31,20X7, applying PAS 37 and other relevant standards.(12 points)