) Question 3 Part A The Financial Controller of a client company, Mr. Brown, from Mahogany Ltd., manufacturers of wood paneling, has approached you for some advice. He is unsure of the correct accounting approach for Provisions. Requirement: Draft a letter to your client giving advice on the following ((a) and (b)): (a) In accordance with IAS 37 Provisions, contingent Liabilities and Contingent Assets, define a provision and describe the three circumstances under which a provision should be recognize 6 Marks (b) Mr. Brown has also made available the following information for which he needs guidance: (i) Wood paneling installed by the company in a large restaurant has warped. The restaurant has issued proceedings against the company, who dispute the liability. Mr. Brown's solicitors were unsure as to whether or not the outcome of the court case would be favourable for the company. (ii) During November 2019 it was decided to close the company's Galway Branch. No formalized plan has yet been devised and employees have not been informed. The company has a lease on the Galway premises. This has four years left to run and Mahogany would like to cancel this to carry out its planned closure. However, due to the terms of the contract, it has been unable to do so. (iv) Under new Health and Safety legislation, the company is required to provide an up to date Air purifying system to absorb the fumes from the varnish during production. This was to be done by 30 September 2019 but has not yet been installed. Non-compliance will result in a fine of 100,000. 16 Marks Part B Teak Ltd. began trading on 1 January 2018. It prepares its financial statements to 31 December. At 31 December 2018 the accountant for Teak Ltd. estimated a Tax liability of 126,000. On August 31, 2019 Teak paid its tax liability in full for 2018 of 129,550. The estimate for Tax payable at 31 December 2019 was 135,000. (iii) Requirement: Prepare the Journal entries and Ledger account for Taxation for 2018 and 2019. 8 Marks