Renaissance Berhad decided to reorganize a manufacturing facility during November $2022$ and

commissioned a consulting engineer to carry out a feasibility study. A provision for the

reorganization was created at $31$ December $2022.$ Staff functions will change following the

reorganization, so in December $2022,$ Renaissance Berhad contracted with a training company

to provide retraining to take place in January $2023.$ A provision for this expenditure was created

at $31$ December $2022.$ Renaissance Berhad hopes that reorganizing its manufacturing facility

will improve quality control. Renaissance Berhad awards a one$-$year warranty with all products

and the rate of returns under warranty is $12\%.$

$5\%$ of the returned items can be repaired at a cost of RM$5$ per unit $($free of charge to the

customer$).$ The other $95\%$ are scrapped and a full refund of RM$30$ per unit is given.

Renaissance Berhad sold $525,000$ units during the year to $31$ December $2022.$ In five years

time, Renaissance Berhad will have to dismantle its factory and return the site to the local

authority. A provision was set up for the present value of the dismantling costs when the factory

was first acquired. The opening balance on the provision at $1$ January $2022$ was RM$2\mathrm{.}63$

million. Renaissance Berhad has a cost of capital of $8\%.$

Required:

$($i$)$ Renaissance Berhad's accountant is preparing the financial statements for the year to $31$

December $2022$ and is not too sure about the provisions set up for the reorganization of the

facility and staff training.

Explain the correct accounting treatment according to MFRS $137-$ Provisions, Contingent

Liabilities and Contingent Assets.

$(2$ marks$)$

$($ii$)$ Renaissance's finance director is checking some of the financial estimates involved. The

definition of IAS$37/$ MFRS$137$ states that, if the reporting entity is presently obliged to transfer

economic benefits to another party, the occurrence is probable, but the amount cannot be

measured with sufficient reliability.

Explain the accounting treatment that should be reflected in the financial statements of

Renaissance Berhad in accordance with IAS$37/$ MFRS$137.$

$(2$ marks$)$

$($iii$)($a$)$ Calculate the amount of the provision that should be created at $31$ December $2022$ for

returns under warranty. Show all workings.

$(10$ marks$)$

$/$MFRS$137$ in $($iii$)($a$)$ above.

$($iv$)$ Calculate the amount of provision that should be carried forward at $31$ December $2022$ for

the dismantling of the factory. Show all workings.

$(3$ marks$)$