The directors of Elite Ltd are due to consider the authorization of the company’s financial statements for issue for the year ended 31 December 2017 and the following events are revealed. As you are the financial controller of Elite Ltd, discuss how you would account for the following items in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets. Justify your answers

a Bills receivable of $2 million were discounted during the year and are due for maturity on 15 February 2017. The bill is discounted with recourse, that is, Elite Ltd has to repay the amount to the bank if the bill is unpaid by the customer on the maturity date.

b A former employee, who was dismissed from the company’s service, has lodged a claim of $500,000 against the company for unfair dismissal. The company’s legal advisers do not think he will succeed in any claim, and have been negotiating with the former employee who has reduced his claim to $300,000. A provision of $200,000 has been made.

c Elite Ltd has guaranteed the bank overdraft of one of the directors of Elite Ltd to the extent of $10 million as at 31 December 2017.