On 31 January 2017 the marketing director of Banana Ltd informed management of the

possibility that the new logo of the company appearing on all its aircrafts will have to be changed

after the complaints were received from its main competitor Nartjie Ltd. The competitor claims

that the new logo is very similar to their own logo and started legal proceedings against Banana

Ltd. However, on 28 February 2017 the legal advisors of Banana Ltd are of the opinion that it is

not probable that Nartjie Ltd will be successful with their legal claim against the company.

After a review of the company's insurance policy covering possible claims from passengers for

damaged or lost baggage and flight delays, the financial director of Banana Ltd recommended

that the company cancel their current insurance policy with Quicksilver Ltd on 1 March 2015

and self-insure in future. Based on previous year's records, the financial director estimated that

these claims from passengers amounted to approximately N$240 000a year. For the year ended

28 February 2016, 25 claims amounting to N$185 000 in total were submitted by passengers. On

28 February 2016, it was possible that these claims of N$185 000 would be successful. On 15

April 2016 the court ruled that the amount of N$178 000 should be paid for all the claims

submitted during the previous financial year, which was subsequently paid out. Claims

amounting to N$260 000 in total were submitted by passengers during the year ended 28

February 2017. The final outcome of these claims will be determined during the court hearings

scheduled for April 2017. On 28 February 2017 the legal advisors of Banana Ltd advised the

Page 13 of 20

company that the possibility is remote that the company will be found liable for N$65 000 of the

claims submitted during the current financial year due to incomplete records.

Required:

2.1 Prepare Journal entries for the above-mentioned transactions in the books of

Banana Ltd for the year ended 28 February 2017

7

2.2 Disclose the above transactions in the notes to the financial statements of

Banana Ltd for the year ended 28 February 2017 according to the requirements

of IAS 37: Provisions, contingent liabilities and contingent assets.