Requirements for provision accounting

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Reference no: EM131003960

Critically assess the following cases within the context of the IAS 37 requirements for provision accounting.

(a) Company A offers a one year warranty for the products that it manufactures. Yearly revenue subject to product warranties amounts to €3 000 000. In past years between 1 per cent and 3 per cent of the products proved defective. Defective products are replaced.

(b) Company B produces and sells phosphate fertilizers that are used to grow grains. The process of extracting the raw materials from the land the company owns, has a major impact on the natural environment. At balance sheet date, estimates of environmental remediation costs amount to €5 000 000.

(c) A law suit claiming damages has been filed against company C. The company foresees a reasonable possibility of losing the law suit. The company's legal advisers have estimated potential settlement costs at €350 000.

(d) Company D runs an airline. The company is required by law to overhaul its aircraft once every three years. The future maintenance costs are estimated at €2 500 000.

Reference no: EM131003960

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