Reference no: EM132600664

MPERS 21 Provisions, Contingent Liabilities and Contingent Assets prescribes the accounting treatment for provisions, contingent liabilities and contingent assets that may exist at the end of the reporting period which may affect the financial position and/or performance of the reporting period. By referring to the following independent business cases you are required to discuss on the accounting treatment and disclosure requirement:

Question a) A manufacturer of electrical goods gives warranties at the time of sale to purchase of its products. Based on past experience, repair costs was 3% of the cost of sales. During the current year, cost of sales was RM4 million. Discuss the recognition and measurement criteria in relation to this case.

Question b) An entity operates excursions to outlying islands. In the process of operating the ferries, corals and other underwater vegetation are destroyed. A law requiring ferry operators to be held liable for damages to the coral reefs is being formulated. When the law comes into effect the entity will be facing stiff penalties. Discuss whether the entity has to make a provision.

Question c) A manufacturer of paint disposes its toxic waste in the nearby river. There is no environment protection law. However, the manufacturer cleans up the river annually. Discuss whether the entity has to make a provision.

Question d) An employee was injured while working. He took legal action and sought damages of RM3 million. The entity has taken legal advice and is confident the entity will be held liable but the amount payable in questionable. Discuss the matter.

Question e) Raymond recently undertook a sales campaign whereby customer can obtain free gifts, by presenting a coupon, which has been included in an advertisement in the national newspaper, on purchase of specific electrical household appliances. The offer is valid for a limited time period from 1 January 2020 until 31 July 2020. Management is unsure as to how to treat this offer in the financial statements for the year ended 30 April 2020. Advise the management.

Question f) An entity rented a building for five years at an annual rental od RM1 million. A year after occupying the building, it moved its operations to another city and was able to rent out the building for RM300,000 per annum. What is the accounting treatment for this onerous contract?

Question g) A supplier of burger patties signed a contract to deliver 1 million patties a month to the retailer. The contract price was RM500,000 but after signing the contract, the supplier discovered that he would have to source for the patties at a cost of RM700,000. The supplier could not get out from the contract. Advice the supplier.