Bright plc operates a fleet of commercial aircraft. On 21 February 20X1 the government passed a...

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Bright plc operates a fleet of commercial aircraft. On 21 February 20X1 the government passed a new law requiring the mandatory upgrade of the electronic security systems on board all commercial aircraft. The deadline to complete the upgrade works was 31 September 20X1 and failure to meet the deadline would be punishable with a penalty of £1 million. Bright plc drafted an upgrade plan and estimated total upgrade costs to be £2 million, however by 31 December 20X1 (Bright plc's financial year end) the company had not yet committed to the plan, and none of the upgrade work had started. The government started legal proceedings against Bright plc in November 20X1 for non- compliance with the law. In December 20X1, Bright plc's lawyers provided an opinion suggesting that it was more likely than not that Bright plc would be found liable to pay the £1 million statutory penalty, and that the final judgment on the court case would probably be provided in late 20X2. Explain whether Bright plc should recognise the following on 31 December 20X1: a) A provision with regards to the penalty for failure to meet the statutory deadline (if yes, describe the related accounting entries). b) A provision with regards to the upgrade works (if yes, describe the related accounting entries). Bright plc operates a fleet of commercial aircraft. On 21 February 20X1 the government passed a new law requiring the mandatory upgrade of the electronic security systems on board all commercial aircraft. The deadline to complete the upgrade works was 31 September 20X1 and failure to meet the deadline would be punishable with a penalty of £1 million. Bright plc drafted an upgrade plan and estimated total upgrade costs to be £2 million, however by 31 December 20X1 (Bright plc's financial year end) the company had not yet committed to the plan, and none of the upgrade work had started. The government started legal proceedings against Bright plc in November 20X1 for non- compliance with the law. In December 20X1, Bright plc's lawyers provided an opinion suggesting that it was more likely than not that Bright plc would be found liable to pay the £1 million statutory penalty, and that the final judgment on the court case would probably be provided in late 20X2. Explain whether Bright plc should recognise the following on 31 December 20X1: a) A provision with regards to the penalty for failure to meet the statutory deadline (if yes, describe the related accounting entries). b) A provision with regards to the upgrade works (if yes, describe the related accounting entries).

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