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How do determine whether a provision should be recognised

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Reference no: EM132706040

Collingwood Pty Ltd has the following obligations:

  • It has agreed to repair faulty surfboards that it has sold. Evidence indicates that of the 2,000 surfboards that were produced in overseas factories, about 20% use defective fibreglass that will need to be replaced at an expected cost of about $250 per surfboard.
  • It has a policy of providing long service leave to its employees. Under the arrangement, if employees stay for a period of ten years then they are entitled to an additional 15 weeks of holidays. Collingwood Pty Ltd believes it can reliably estimate how much the current years operations have contributed to this obligation.
  • Collingwood Pty Ltd has an amount owing to its overseas supplier of $70,000, which it expects to pay in the next month.
  • Collingwood Pty Ltd has a bank loan of $500,000.

Problem 1: For the above transactions and events determine whether a provision should be recognised and provide a rationale for your response.

Reference no: EM132706040

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