FINANCIAL ACCOUNTING

QUESTION 1 (15 Marks)

1.1 Discuss the recognition criteria, measurement and disclosure requirements of a provision, in your discussion also define liability and provision (10 marks)

1.2 Identify whether the following can be recognised as either a contingent liability, provision or contingent asset? (5 marks)

a) ABC Limited is expecting that 5% of each debtors book value of R2 000 000 will not be recovered

b) An employee was injured at work and is suing his company for R10 000 000. The lawyers have advised that it is unlikely that the claim will be unsuccessful.

c) If a company has decided to restructure the division but has not informed the affected employees and there is no formal plan developed.

d) A manufacturer offers a warranty to a customer for its products the product warranty in the contract specifies the conditions under which the manufacturer will compensate for defective goods.

e) Company A has filed a lawsuit against RT Ltd. There is a fair chance of Company A winning the case. How will it be recognized in the books of Company A