Nature of Assets and Liabilities

Glen Ltd, a property developer entered into the following transactions during the 2016 financial year. The balance date is 31^st December.

Transaction A:

Glen Ltd bought a land (Block 1) from Tom Ltd for $500,000. This land was right next to a piece of land (Block 2) that Glen Ltd bought 2 years for $500,000. The 2 blocks are practically identical. Glen Ltd spent another $25,000 to improve Block 1 so it has the same value as Block 2. (2 marks)

Transaction B:

Mr.Sione filed a lawsuit against Glen Ltd for $10,000 because one of Glen Ltd vehicles allegedly got damaged some of Mr.Siones property and crops. Glen Ltd expected that it will take no more than 3 years before the lawsuit is settled. (2 marks)

Transaction C:

Glen Ltd bought shares worth $12,000 on 7^th September 2016 and held the shares for investment. On 31^st July 2017, the shares has market value of $11,500. (2 marks)

Required:

(a) For each of the Transactions above, briefly outline how Glen should record each of the transactions A,B and C. Also provide relevant journal entries. (6 marks).

(b) A Provision is a liability.

(i) Clearly explain what a Provision is using provision for sick leave as an example. (4 marks)