Accounting Assignment | College Homework Help

For cases regarding provision, contingent liabilities given below:

Case 01 -Orange Co allows customers to return faulty goods within 14 days of purchase. At 31stDec 2017 a provision of OMR 32,500 was made for sales returns. At 31st Dec 2018, the provision was re-calculated and should now be OMR 38,000.

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Case 02 – In the year 2019 the company made some modification to the product and now it is assuming that the ratio of faulty product will reduce considerably. That will reduce the provision requirements to OMR 35,000.

Case 03 – Classic Co sells goods with a one-year warranty and had a provision for warranty claims of OMR 34,000 at 31st Dec 2018. During the year ended 31st December 2019, OMR 13,000 in claims were paid to customers. On 31st December 2019, Classic Co estimated that the following claims will be paid in the following year:

Scenario Profitability Anticipated cost
Worst case 5% $ 70,000
Best case 20% $ 14,000
Most likely 75% $ 30,000

Question

Using information given in above cases, you are required to:

A. Compute the amount of provision that should be recognized in Orange Co’s statement ofprofit or loss for the year to 31st Dec 2018 in respect of the provision?

B. Compute the amount of provision that should be recognized in Orange Co’s statement ofprofit and loss for the year to 31st Dec 2019 in respect of the provision?

C. What amount should Classic company record in the statement of profit or loss for the year ended 31st December 2019 in respect of the provision?

D. Analyze the key concepts about Provisions, Contingent Liabilities and Contingent Assets in accordance to IAS 37. Clearly stating whether it should be recognized in financial statement or disclosure as notes to accounts. Enhance your answer by giving appropriate examples. Get Accounting homework help today