Provision,contingent liabilities.

1. Pearl Bhd was sued by its competitor for patent infringement in October 2018. Its legal advisers had determined that it is probable that Pearl Bhd will lose the case and the estimated amount of damages will be RM 400,000

Required :

Briefly explain how the damages should be reported on the statement of financial position of Pearl Bhd

2. EM Bhd acquired a piece of land from DD Bhd for RM900,000 in August 2018. In November 2018,it was discover that the land was contaminated. As a result, EM Bhd sued DD Bhd for

RM 150,000. The legal advisers of EM Bhd believe that there is 80% chance of winning the case.

Required :

Discuss how EM Bhd should account for this lawsuit in its statement of financial position as at 31 December 2018.

3. Below are the independent situation, based on each situation, discuss how the entity should account for the transactions in accordance with MFRS 137- Provisions,Contingent liabilities and Contingent Assets, giving reasons for your answer. Assume that the accounting year end is 31 December 2018

a. During the financial year, WHITE Bhd sued its main supplier for 1.5 Million damages for faulty supply of materials which had affected its production. As the reporting date, a decision was given in favour of the entity. The hearing to determine the amount of damages,however would only be held after the reporting date.

b. GREEN Bhd had an overseas subsidiary involved in mining activities that caused significant damage to the environment. The mine was situated in a country where there was no environmental regulation requiring the entity to remedy environmental damage. It was estimated that the cost of restoration of the mining site, which was estimated to be in 10 years time, would probably be RM 15 Million.

c. Red Bhd sold goods with a warranty where customers are covered for the cost of repairs due to manufacturing defects within the first year after purchase. Red Bhd estimated that the probability of goods sold with major defect will be 25% and the estimated repair cost would be 2 Million