QUESTION FOUR $[20]$

Discuss whether each entity shall list a provision or not. Please include justification for your answer

and answer the questions in terms of IAS $37.$

Entity A

The entity unconditionally guarantees its product, which it has produced using the same technique

for many years, against mechanical defects for one year from the date of sale.

Entity B

The entity guarantees its product, which it has produced using the same technique for many years,

against mechanical defects for one year from the date of sale, provided the purchaser completes

and submits a guarantee card within two weeks of the date of purchase.

Page $5$ of $6$

Entity C

The entity expects to undertake major repairs and maintenance to its factory building in $10$ years$$

time and has therefore decided to provide for this by creating a provision for major maintenance

evenly over the next ten years.

Entity D

The entity is a small$-$scale diamond miner whose mining concession stipulates that the environment

must be restored upon completion of the mining operation.

Entity E

The entity is a large$-$scale diamond miner $($listed on the JSE$)$ whose mining concessions were

granted prior to the recently enacted environmental legislation and therefore contains no legal

obligation to restore the environment. Due largely to the actions of various local and international

environmental groups, the company issued a formal statement voluntarily undertaking to restore the

environment. This prompted the national government to issue new lucrative concession go the

company, conditional upon it fulfilling its voluntary environmental undertakings.

Entity F

The entity is a diversified manufacturing company. One of the company$$s divisions is expected to

make significant operating losses in the next financial year. Management wishes to provide for these

losses in the current financial year.