Munster Mouldings plc sells industrial plaster moulds in Ireland and the EU. You have

been provided with the information below and are asked how you would treat these

scenarios in the financial statements of Munster Mouldings plc for the year ended 31

December 2021.

(1) Munster Mouldings plc had sales of 5,000,000 for the year ended 31 December

2021. From experience the company estimate warranty claims to amount to 2% of

sales. Repairs made to goods under warranty in 2021 amounted to 60,000. Show

the journal entries required to record the above provision for warranty claims and

how the actual claims would be recorded.

(4 marks)

(2) Munster Mouldings plc uses recourse factoring whereby the company agrees with

the factor to repurchase any debts not paid to the factor within 90 days of the sales

invoice date. In the year ended 30 December 2021, the factored credit sales of the

company were 2 million, of which 1.8 million had been paid to the factor, 150,000

was unpaid but due within 90 days and 50,000 was unpaid for more than 90 days.

(4 marks)

(3) There is an outstanding legal action concerning the delivery of defective mouldings

to a customer. Munster Mouldings plcs lawyer estimates that it is probable that they

could achieve a settlement out of court for 90,000, but if the case goes to court the

award could be in the region of 75,000 to 150,000.

(4 marks)

(4) As a company selling plastic mouldings products within the EU, Munster Mouldings

plc are subject to orders made by the Restrictive Trade Practices Court, which

prohibit them from entering arrangements to fix target prices for products. It has been

discovered that employees of the company have entered prohibited arrangements.

It is possible that contempt proceedings may be taken against Munster Mouldings

plc, but it is impossible to indicate the levels of any penalties that may be imposed.

(4 marks)

Required

Explain how the above should be treated in accordance with IAS 37, Provisions,

Contingent Liabilities and Contingent Assets. Show, where appropriate, the necessary

journal entries to record how each of the events outlined in (1) to (4) in the financial

statements of Munster Mouldings plc for the year ended 31 December 2021.

Total 25 marks