Use the following information to answer question 3 to 4:

Maxmor Ltd has had negative publicity due to not complying with the prices that they had promoted on the market due to price hikes with the manufacturing parts. Due to this incident, they have estimated future operating losses of R120 000.

QUESTION 3:

Which one of the following should be accounted for in the financial statements for the year ended 28 February 20.19?

1.

A provision for the future loss should be raised for R120 000

2.

Since this is a contingency, a note must be disclosed for a contingent liability

3.

The future loss does not meet the definition of a provision and thus no provision should be made

4.

A note for a contingent asset should be disclosed in the financial statements

QUESTION 4:

Which one of the following statements is correct?

1.

When there is a remote possibility of an outflow of resources embodying economic benefit due to a past obligation as a result of present events no disclosure must be made.

2.

When there is a probable possibility of an inflow of resources embodying economic benefit due to a present obligation as a result of past events a contingent liability must be disclosed.

3.

When the possibility of an outflow of resources embodying economic benefit is not probable due to a present obligation as a result of past events a contingent liability must be disclosed.

4.

When the possibility of an outflow of resources embodying economic benefit is highly probable due to a present obligation as a result of past events a contingent liability must be disclosed.