A. Given below are independent situations. Assume that the financial year for each business entity ends on 30 June.   

1. A manufacturing entity, Company X, was sued by a neighbouring factory for illegal dumping of wastes on its property, which was also detrimental to the environment.   The legal suit for damages estimated at RM450,000 took place on 6 April 2020. Company X’s legal advisers are of the opinion that the facts of the case are, however, disputable and that Company X may or may not be found liable. The court hearing is scheduled for 17 August 2020.

2. Company Y raised additional funds needed to expand its business by issuing an 8% RM1 million bonds. The bonds will mature and are redeemable at the end of 5 years. Cost of issue paid was RM60,000.   

3. Company Z sold sewing machines, for which a 1-year warranty is given to its customers. The probability of major defects is 10% and for minor defects is 90% of sewing machines sold. Based on the sales made during the year ended 30 June 2020, the estimated repair costs are RM100,000 for major defects and RM80,000 for minor defects.

Required:

For each independent situation given above, decide if the situation gives rise to a liability, a provision or a contingent liability. Indicate how it is to be presented or disclosed.

(Your discussion should be in accordance with MFRS 137 Provisions, Contingent Liabilities and Contingent Assets and MFRS 101 Presentation of Financial Statements. Show workings where relevant)

Answer rating: 100% (QA)

1 The manufacturing entity X was sued by the neighbouring factory for illegal dumping of waste on its property which as detrimental to the environment In this case it is to be determined whether it co... View the full answer