a. On November 12, 2020, a former employee filed a lawsuit against Hully alleging age discrimination and asking for damages of RM750,000. On December 31, 2020, Hully's lawyers indicated that the likelihood of losing the lawsuit was possible but not probable. Hully agreed to pay the former employee RM125,000 in return for withdrawing the lawsuit. 

b. It is a policy of Quality Man to offer a two-year product warranty for its products. Under the terms of sale, Quality Man undertakes to make good, by repair or replacement, manufacturing defects that become apparent within two years from the date of sale. 

c. Petrongas Bhd causes contamination but cleans up only when required to do so under the law. The country in which it operates has had no legislation requiring cleaning up, and the entity has been contaminating land in that country for several years. On 31 December 2020, it is virtually certain that a draft law requiring a clean-up of land already contaminated will be enacted shortly after the year-end. 

d. As a result of its plastics operations, Rayyanz Berhad has contaminated the land on which it operates. There is no legal requirement to clean up the land, but Rayyanz Berhad has a long record of cleaning up land that it has contaminated. 

e. An oil company has constructed an oil rig costing RM200 million to explore and extract oil for ten years. The company is required to clean up the area and rectify any damage done to the seabed when the oil is extracted. The entity has estimated the present value of the clean-up cost to be RM25 million. Clean-up cost due to the construction of the oil rig is 70% and the rest is due to operations. 

f. An employee was injured while working. He took legal action and sought damages of RM2 million. The entity has taken legal advice and is confident the entity will be held liable but the amount payable is questionable. 

Required: Discuss the accounting treatment for the above. Support your answer with reasonable reasons.

Answer rating: 100% (QA)

a If Hully loses the lawsuit it will be required to pay RM750000 in damages to the former employee This amount is a liability as of December 31 2020 a... View the full answer