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Question 2 Rex Bhd (Rex) is in the oil extracting industry. On 1 February 2019, an explosion has occurred at one of Rex's oil extraction
Question 2 Rex Bhd (Rex) is in the oil extracting industry. On 1 February 2019, an explosion has occurred at one of Rex's oil extraction plants. This has caused several employees injured during the explosion to make personal injury claims on Rex. Six claims have been received to-date but if these claims are successful, it is high likely that four more employees who were injured will make a claim. Rex's lawyers who are experienced in this type of lawsuit have advised that it is probable that the claims will succeed and have estimated the average cost per payout to be RM180,000. The lawyers have recommended that Rex settles the claims out of court as soon as possible at their estimated amount for all ten employees injured to avoid any adverse publicity. On top of that two further employees have made claims for the stress, rather than injury that the explosion has caused them. The lawyers are of the opinion that it is very unlikely that these employees will win such a case. If these claims were to succeed, the lawyers have estimated that the likely payout would be around RM10,000 each. Rex made an insurance claim to recover the personal injury costs that it is probable to incur. As at year end 31 December 2019, the claim is in its advanced stages and the insurance company has written a letter to Rex indicating that it has agreed to meet the cost of the claims in full. It will refund Rex once the claims have been settled. Required: Advise Rex Bhd. on the proper accounting treatment for the above matters in the financial statements for the year ended 31 December 2019 in accordance with IAS 37 / MFRS 137 Provisions, contingent liabilities and contingent assets
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