Reference no: EM132974747

Question - i) Oxford Plc is a UK listed group that prepares consolidated financial statements using international financial reporting standards (IFRS). In July 2020 Oxford plc supplied a single, unique product to a company. The product was faulty and in February 2021 the customer initiated proceedings against Oxford plc for losses incurred. A specialist consultant has advised Oxford plc that there is a case to answer. He has estimated that there is a 30% chance of damages amounting to £2 million, a 60% chance of damages amounting to £5 million and a 10% chance of damages amounting to £30 million. No provision has been made. The audit committee believes that Oxford Plc may have insufficient funds to settle damages amounting to £30 million. The year end for Oxford Plc is 31 December 2020.

ii) Pearson plc purchased a machine for £200,000 on 1st of April 2020. The useful life of the asset was initially assessed as ten years. In 31st of March 2020 the government announced a change in legislation which would require the withdrawal of the products from 31st of March 2022. The fair vale less costs to sell of the machine has been assessed as £120,000 and the present value of the future cash flows from the machine as £90,000. Management are developing capital expenditure plans which will allow the machine to be used for other products and enhance the asset above previously assessed levels. They believe it will increase the value in use to £150,000.

Requirements - Explain and justify the required accounting treatment of these issues, preparing calculations where appropriate and showing the presentation requirements.