Reference no: EM132595906
Question - Atiz Concrete Bhd was a brick manufacturing company which established in 1995. The company was in the process of finalising its financial statement for the year ended 31 December 2019. Below are the situations that relate to the company during the year ended 31 December 2019:
Situation 1 - The company had signed a 5 years non-cancellable agreement to rent an office space for its corporate office. According to the agreement, Atiz Concrete Bhd was required to pay annual rental of RM120,000 and prohibited to rent out the office space to any third party. On 1 January 2019, which was after 4 years from the agreement date, the company decided to relocate its corporate office to another place. The office space remained vacant until 31 December 2019.
Situation 2 - The company did not have any return or refund policy for defect and damaged goods. However, the company was known among the customers for giving refunds depending on situations. Total refund in 2018 was RM30,000 and the company estimated that total refund in 2019 is RM18,000.
Situation 3 - In December 2019, one the company's lorries was involved in an accident. The repair and replacement cost was estimated to be RM15,000. On 5 January 2020, Atiz Concrete Bhd received a confirmation letter from the insurance company that agreed to pay the compensation claims of RM10,000 only.
Required -
a. i. Indicate the treatment of Changes in Provisions in accordance with MFRS 137 Provisions, Contingent Liabilities and Contingent Assets.
ii. Indicate the treatment of Future Operating Losses in accordance with MFRS 137 Provisions, Contingent Liabilities and Contingent Assets.
iii. Discuss briefly whether the company had to recognise the provision for the rental cost of the office space in Situation 1 above.
iv. Explain briefly the proper accounting treatment for Situation 2 above.
b. Prepare the following financial statements to reflect Situation 3 above:
i. The Statement of Profit or Loss (extract) for the year ended 31 December 2019.
ii. The Statement of Financial Position (extract) as at 31 December 2019.