For each situation, discuss how the entity should account for the transactions in accordance with MERS 137 - Provisions, Contingent Liabilities and Contingent Assets, giving reasons for your answer. Assume that the accounting year end is 31 December 2018. 1. Turquoise Bhd was being sued by a customer for RM2 million for breach of contract, Turquoise Bhd had obtained legal opinion that it was not probable Turquoise Bhd would lose the case. Accordingly, Turquoise Bhd had provided RM400,000 which was included in administrative expenses. The unrecoverable legal costs of defending the action were estimated at RM500,000. However, this amount had not yet been provided for as the legal action would only go to court in 2019. Answers: 2. Crimson Bhd operates a factory in a foreign country where there is no environmental legislation requiring entities to provide for the cost of environmental clean-up. In 2018, the factory operations caused a serious threat to the ecosystem of a nearby river, and the probable clean-up cost was estimated to be RM10 million. Crimson Bhd had taken an insurance policy for environmental damages, and the insurers agreed to pay a compensation of RM7.5 million in January 2019. Crimson Bhd was publicly acclaimed as a socially and environmentally responsible corporate citizen. Answers