(a) In general, a liability is a present obligation arising from past events which is required to be settled or paid in the future. A liability may also refer to the legal liability of a business or individual.

Required:

Explain the factors that need to be considered in determining whether or not to record a liability for pending litigation.

(b) Soon Sing Sdn Berhad is a gold mining company in Malaysia. The geologist of the company discovered that there is plenty of gold underneath a land not far from a small touristic town in Raub. Soon Sing Sdn Berhad bought the land and started the gold mining process in the year 2020. The mining process will severely damage the environment as various chemicals will be used. Currently, no legal obligation exists under the law in Malaysia to restitute the land after the extraction of gold. However, the company has promised to an association of the local residents that the company will restitute the land and clean up the environment after the gold mining process is completed. It is estimated that the mining will take about 5 years to complete and the company will incur RM5 million to clean up the land upon completion of the gold mining.

Required:

Discuss the accounting treatment from the perspective of Soon Sing Sdn Berhad.

(c) BOB Berhad is a computer manufacturer in Klang. The computers produced by this company are widely sold in many countries in the world and the company is well known for the quality of its product. The company provides warranty claims for all defective parts within 5 years of sales. Based on past statistics, on average about 10% of the computers sold give rise to warranty claims. For the past 5 years, the average sales per annum for the company is 1 million units and the average cost of rectification per unit is RM100.

Required:

Discuss the accounting treatment for the year ended 31 December 2020.

(d) The Covid 19 pandemic has seriously affected the economic condition of many countries in the world. The economists of Malaysia are quite pessimistic with the GDP growth of the country. Currently many companies in Malaysia are unable to sustain their business and the unemployment rate has surged to a historical high. The market research conducted by M&M Berhad indicated that the entertainment segment of the company is likely to continue to perform badly in the next coming years. However, the other segments of the company such as pharmaceutical and online marketing are performing well in the current year as well as the near future. One of the company directors has proposed that the company should record a provision for the future losses this year for the entertainment business since the profits made from other business segments are sufficient to offset the anticipated future losses and the company will still show good results as a whole.

Required:

Advise the director on the appropriate accounting treatments for the above case.

Answer rating: 100% (QA)

a Liability over a pending litigation wouldnt be needed as it doesnt create present obligation howev... View the full answer