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High Ltd is the primary contractor responsible for constructing a power plant for Thai Lid. It has been discovered that there are defects in the

High Ltd is the primary contractor responsible for constructing a power plant for Thai Lid. It has
been discovered that there are defects in the construction of the power plant. The estimated
cost to fix these defects is $100m. It had previously recognised a provision for warranty of
$40m on the project as part of project costs. However, High Ltd believes it can recover a
substantial part of the costs from the subcontractors who performed some of the construction
works. Negotiations with these subcontractors are ongoing, and so far, only two subcontractors
have accepted liability. The amou
nt of reimbursement that is considered virtually certain is
estimated to be $10m.
Kaplan Business School Assessment 3 Case Study
Can you explain with journal entries how High Ltd shall account for the above estimates of
costs and reimbursements? What would be criteria for recording such liabilities?

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