A building contractor seeks your advice on how the following claims should be treated when finalising accounts for the year ended 31 December 2012:

(a) When the scaffolding at a building site collapsed, a worker sustained head injuries and was paralysed. In the opinion of the company solicitors, damages of around £400,000 may be awarded. The insurance company refuses to meet the claim on the premise that the worker concerned was not wearing a protective helmet at the time of the accident.

(b) The contractor’s practice is to take responsibility for all remedial work relating to any construction work for three years from the date of completion. In respect of a building handed over in December 2011, a provision of £40,000 for remedial action was made when the accounts were prepared for the year ending 31.12.2011. Remedial actions on that building during 2012 have already cost £28,000. Investigations into major cracks on the building reveal the need for underpinning and that may cost £30,000 more and perhaps a further £5,000 in the event of any price escalation.

(c) A worker has filed legal action claiming £100,000 on the basis that his ailments arose from the vibration of working with angle grinders. He has produced medical opinion to support this claim. It may be possible to come to an out-of-court settlement at an amount of around £50,000. The insurance company is prepared to admit this claim at £40,000.

(d) A customer has claimed £25,000 as the cost of luxury bath suites damaged because of negligence of the contractor’s workers. Negligence of the workers has been established. The contractor will be able to realise £10,000 by disposing of the damaged bath suites.

Required: 

Advise the contractor for items (a) to (d) above.