Heichi Bhd manufactures and sells food products and food-processing machinery. In preparing the financial statements for...

 

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Heichi Bhd manufactures and sells food products and food-processing machinery. In preparing the financial statements for the financial year ended 31 December 2018, the following information was discovered relating to provisions and/or contingencies, as well as possible adjustments to liabilities/assets: On 20 August 2017, a former employee filed a lawsuit agaínst Heichi due to wrongful dismissal and age discrimination. RM50,000. At that time, Heichi's legal team indicated that the probability of losing the lawsuit was possible but not probable. However, on 30 December 2018, Heichi agreed to pay the former employee RM25,000 in return for withdrawing the lawsuit. 1. He asked for a compensation amounted to A legal action is being taken against Dodol Bhd, one of Heichi's supplier. The supplier has failed to deliver on contracts for the supply of cocoa solids, which have caused Heichi's production to halt for about two months in the year 2017. At the end of 2018, the lawsuit is in its final appeal and the legal team advises that it is probable that Heichi Bhd will win the case. 2. Heichi's branch in Indonesia is involved with the plantation of sugar cane. As the plantation is causing significant damage to the environment, Heichi estimates that the cost of restoring the plantation site, which is deemed to be in 10 years' time, will probably be RM500,000. Currently there is no environmental regulation requiring the company to remedy the environmental damage. However, it is Heichi's common practices of doing so. 3. Heichi Bhd has a policy of providing a two-year free service upon sales of its food- processing machine. Past experiences and future expectations show that 70% of goods sold will have no defect, 20% of goods sold will have minor defects, and 10% of goods sold will have major defects. The cost of repairs are RM100,000 for minor defects and RM500,000 for major defects. The company uses expected value approach to estimate the provision for the repair services related to the defects. 4. Required: Analyse the accounting treatment for each of the above situations whether it is a provision, contingent liability, contingent asset, or no accounting effect. Prepare the relevant journal entries (if any). Explain your reasoning. You can prepare your analysis in the following format: Accounting No. Journal entries (if any) Reasons Treatments 1. (15 marks) Heichi Bhd manufactures and sells food products and food-processing machinery. In preparing the financial statements for the financial year ended 31 December 2018, the following information was discovered relating to provisions and/or contingencies, as well as possible adjustments to liabilities/assets: On 20 August 2017, a former employee filed a lawsuit agaínst Heichi due to wrongful dismissal and age discrimination. RM50,000. At that time, Heichi's legal team indicated that the probability of losing the lawsuit was possible but not probable. However, on 30 December 2018, Heichi agreed to pay the former employee RM25,000 in return for withdrawing the lawsuit. 1. He asked for a compensation amounted to A legal action is being taken against Dodol Bhd, one of Heichi's supplier. The supplier has failed to deliver on contracts for the supply of cocoa solids, which have caused Heichi's production to halt for about two months in the year 2017. At the end of 2018, the lawsuit is in its final appeal and the legal team advises that it is probable that Heichi Bhd will win the case. 2. Heichi's branch in Indonesia is involved with the plantation of sugar cane. As the plantation is causing significant damage to the environment, Heichi estimates that the cost of restoring the plantation site, which is deemed to be in 10 years' time, will probably be RM500,000. Currently there is no environmental regulation requiring the company to remedy the environmental damage. However, it is Heichi's common practices of doing so. 3. Heichi Bhd has a policy of providing a two-year free service upon sales of its food- processing machine. Past experiences and future expectations show that 70% of goods sold will have no defect, 20% of goods sold will have minor defects, and 10% of goods sold will have major defects. The cost of repairs are RM100,000 for minor defects and RM500,000 for major defects. The company uses expected value approach to estimate the provision for the repair services related to the defects. 4. Required: Analyse the accounting treatment for each of the above situations whether it is a provision, contingent liability, contingent asset, or no accounting effect. Prepare the relevant journal entries (if any). Explain your reasoning. You can prepare your analysis in the following format: Accounting No. Journal entries (if any) Reasons Treatments 1. (15 marks)

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a This is a loss contingency Hanover can use the information occurring after the end of the year in ... View the full answer