PLEASE SOLVE EACH PART OF THE QUESTION.

THANKS!

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Exercise 3

Lkkerier A / S has over the past many years had great success in selling their original gingerbread, where the company has got its fingers in the original recipe from 1783 from the baker Christian Rasch and Christiansfeld. The cake is sold mainly in the month of December in connection with Christmas.

However, it has turned out that there have been a number of complaints about the cakes from the last one production in December 2021, as the cakes mold after a few days, including several people becoming ill from having eaten the cakes and have been bedridden on Christmas Eve.

Lkkerier A / S is always able to sell the remaining stock of gingerbread to the nursing homes around Aarhus. The inventory of gingerbread has a value of 250.000 DKK. Due to the complaints, the director decides in January 2022 that the cakes must be thrown out. Please account for the accounting treatment of the above transactions in both 2021 and 2022.

Lkkerier A / S has now been sued by a customer for payment of 100 t.DKK in compensation as a result of the sale of the moldy gingerbread.

Please explain the difference between a provision and a contingent liability, including the accounting treatment of each.

Please explain how the above compensation claims are to be treated in the financial statements for 2021. In your answer, you must assume that the company's lawyer expects Lkkerier A / S only to a limited extent can be found guilty, as the cause of the mold must actually be found during transport where the cakes have not been stored properly. Lkkerier A / S uses an external carrier.