Georgina Company is preparing its financial statements for the year ended 30 September 2015.

The following matters are all outstanding at the year end.

(1) Georgina is facing litigation for damages from a customer for the supply of faulty goods on 1 September 2015. The claim, which is for $ 500,000, was received on 15 October 2015. Georgina’s legal advisors consider that Georgina is liable and that it is likely that this claim will  succeed. On 25 October 2015 Georgina sent a counter-claim to its suppliers for $ 400,000. Georgina’s legal advisors are unsure whether or not this claim will succeed.

(2) Georgina’s sales director, who was dismissed on 15 September, has lodged a claim for $100,000 for unfair dismissal. Georgina’s legal advisors believe that there is no case to answerand therefore think it is unlikely that this claim will succeed.

(3) Although Georgina has no legal obligation to do so, it has habitually operated a policy ofallowing customers to return goods within 28 days, even where those goods are not faulty.Georgina estimates that such returns usually amount to 1% of sales. Sales in September 2015were $ 400,000. By the end of October 2015, prior to the drafting of the financial statements,goods sold in September for $ 3,500 had been returned.

(4) On 15 September 2015 Georgina announced in the press that it is to close one of its divisionsin January 2016. A detailed closure plan is in place and the costs of closure are reliablyestimated at $ 300,000, including $ 50,000 for staff relocation.

Required

State, with reasons, how the above should be treated in Georgina’s financial statements for theyear ended 30 September 2015.

Answer rating: 100% (QA)

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