Question
A. Consumer Plus Ltd is a supermarket and is facing litigations regarding a defective
product sold to a customer. The company was told by its lawyers that is it likely to have to pay
$100,000 in damages to that customer. A provision was set up as at 31 December 2017.
However, the following year, the lawyers found that the damages were more likely to be
$500,000.
i
i. Prepare the double-entry and extract from the financial statements to show how the
provision is to be treated and disclosed in the accounts as at:
1. 31 December 2017
2. 31 December 2018
(8 marks)
ii. Explain the rationale underlying the accounting treatment for each year. (1 mark)
B. Based on the Consumer Plus Ltd scenario, distinguish between adjusting and
non-adjusting events based on IAS 10 Events after Balance Sheet date and in relation to IAS 37
Provisions, contingent liabilities and contingent assets. (5 marks)