Reference no: EM132647421

Contingent Liabilities and Contingent Assets.

• Beta Ltd is a chemical company which commenced manufacturing a new chemical on 1 January 2020. There was a chemical spill in June 20 which contaminated the land on which it operates. There is no legal requirement to clean up the land, but Beta Ltd has a long record of cleaning up land that it has contaminated. Beta Ltd anticipates it will undertake the clean from July to December 2020.

Question 1: Identify and explain the appropriate treatment for the clean up in the financial statements of Beta at 30 June 2020, in accordance with AASB 137

Washwell Ltd is a manufacturer of washing machines. When each of its washing machines is sold, Washwell provides a warranty to the purchaser of the washing machine to repair, refund or replace the washing machine for any manufacturing defects that become apparent within a year of the date of sale. Based on past experience, Washwell is predicted to have 10% of the washing machines returned for manufacturing defects.

Sales for the year to 30 June 2020 were $3,500,000.

Required:

Question 2: Applying the criteria in AASB 137, explain whether Washwell should recognise a provision for warranty at 30 June 2020.

Question 3: Prepare journal entry to recognise the provision for warranty at 30 June 2020, assuming that a provision should be recognised.