Entity A is being sued by a customer for $5,000,000 for breach of contract over a...
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Entity A is being sued by a customer for $5,000,000 for breach of contract over a cancelled order. Entity A has obtained a legal opinion that there is a 20% chance that Entity A will lose the case. Therefore, Entity A has prepared to provide $1,000,000 in respect of the claim at the end of the reporting period. The unrecoverable legal costs of defending the action are estimated at $100,000. These have not been provided for as the case will not go to court until next year. REQUIRED: What is the amount of the provision that should be made by Entity A in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets? ANSWER: The provision liability is $ as at the end of the reporting period. Entity A is being sued by a customer for $5,000,000 for breach of contract over a cancelled order. Entity A has obtained a legal opinion that there is a 20% chance that Entity A will lose the case. Therefore, Entity A has prepared to provide $1,000,000 in respect of the claim at the end of the reporting period. The unrecoverable legal costs of defending the action are estimated at $100,000. These have not been provided for as the case will not go to court until next year. REQUIRED: What is the amount of the provision that should be made by Entity A in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets? ANSWER: The provision liability is $ as at the end of the reporting period.
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