Advise cutietoys bhd on the amount of provision

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Reference no: EM132659122

The following information pertains to Cutietoys Bhd. for the financial year ended 31 December 2019:

(1) Cutietoys sales director, who was dismissed on 15 November 2019, has lodged a claim for RM100,000 for unfair dismissal. Cutietoys' legal advisors believed that Cutietoy has a strong case with only 20% chance of losing the case. The hearing will be in June 2020.

(2) Cutietoys has always prides itself in providing quality products and ensuring 100% customer satisfaction. As such, it has habitually operated a policy of allowing customers to return products within 28 days, even for those products which are not faulty for which it has no legal obligation to do so. Cutietoys estimates that such returns usually amount to 1% of total sales. Total sales in December 2019 were RM400,000. By the end of January 2020, prior to the drafting of the financial statements, goods worth RM3,500 sold in December 2019 had been returned in January 2020 and refunded.

Problem 1: Advise Cutietoys Bhd. on the amount of provision that should be recognised and the disclosures that are required to be made in the financial statements for the year ended 31 December 2019 in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Reference no: EM132659122

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