Question 2

(a) Aming Bhd is a company involved in manufacturing of chocolates and snacks. The following events

occurred during the year ended 31 December 2020 for Aming Bhd.

Required:

For each of the events below, critically discuss whether provisions should be recognised in accordance with MFRS 137 Provisions.. Contingent Liabilities and Contingent Assets.

i Aming Bhd is currently expanding its business globally into foreign markets. In July 2020, the factory operations in the foreign country have seriously polluted the environment and the probable clean-up costs has

been estimated at RM8,500,000. Though there is no environmental law in the foreign country, the company still

claims to be a socially and environmentally responsible corporate citizen. (5 marks)

ii. Aming Bhd's board of directors decided to restructure its company in one year's time due to adverse economic condition. The restructuring involves closing its branches in Rawang and Hulu Langat. Due to this, 20% of the staff will be made redundant. Aming Bhd has not come up with the decision as to which employees will be affected. However, Aming Bhd has made an announcement that it is going to restructure.

(4 marks)

iii. One of the cocoa suppliers, Killy Bhd had adverse publicity due to the issue of cleanliness of its factory. Therefore, on 1 September 2020, Aming Bhd decided to terminate the contract with Killy Bhd. The contract will expire in 8 months time. According to the contract, the cost to fulfill the contract is RM80,000 per month. It is also stipulated in the contract that Killy Bhd can accept a compensation of RM700,000 if the contract is terminated more than 6 months before it expires. (6 marks)

(b) (i) A parent company owns a building solely acquired to earn rentals. This property is leased to, and occupied by its subsidiary company