Jet plc, a company that prepares its financial statements to 31 December each year, is involved in the construction and repair of student accommodation. Before the financial statements for the year ended 31 December 2017 can be finalised, a number of outstanding issues need to be resolved.

Issue 1:

In early January 2018, a customer commenced legal action against Jet plc alleging that construction work completed in September 2017 had not been carried out in accordance with the terms of the contract. The directors of Jet plc intend to defend the allegations vigorously and Jet plcs legal advisors estimate that the company has an 75% chance of successfully defending the claim. If the customer is successful, penalties and legal fees are expected to amount to $2,500,000. If Jet plc wins the case, non-recoverable legal fees of $65,000 will have been incurred. The directors of Jet plc are proposing to omit reference to the legal action in the financial statements for the year ended 31 December 2017 as the writ was not issued until January 2018.

Issue 2:

Jet plc was informed on 6 January 2018 that one of its major customers, Ali Limited, had gone into liquidation. The liquidator indicated that no payments would be made to unsecured creditors. The amount owed by Ali Limited to Jet plc on 6 January 2018 amounted to $100,000, of which $60,000 related to work completed on 21 December 2017 and 40,000 to work commenced and completed during the first week of January 2018.

Issue 3:

During 2017, there was unrest amongst Jet plcs construction workers following changes to their terms and conditions of employment, with the directors of Jet plc seeking to make 20% of the workforce redundant. On 6 January 2018, following protracted negotiations, it was agreed that 12% of the workforce would be made redundant at a cost of $400,000.

Issue 4:

As the profits of Urban plc for the year ended 31 December 2017 exceeded expectations, the directors wish to reward the ordinary shareholders for their commitment to the company. At a meeting of the Board of Directors on 5 January 2018 it was decided that a dividend of $500,000 be paid immediately to the ordinary shareholders and accounted for in the financial statements for the year ended 31 December 2017.