High Ltd is the primary contractor responsible for constructing a power plant for Thai Lid. It has

been discovered that there are defects in the construction of the power plant. The estimated

cost to fix these defects is $$100$m$.$ It had previously recognised a provision for warranty of

$$40$m on the project as part of project costs. However, High Ltd believes it can recover a

substantial part of the costs from the subcontractors who performed some of the construction

works. Negotiations with these subcontractors are ongoing, and so far, only two subcontractors

have accepted liability. The amou

nt of reimbursement that is considered virtually certain is

estimated to be $$10$m$.$

Kaplan Business School Assessment $3$ Case Study

Can you explain with journal entries how High Ltd shall account for the above estimates of

costs and reimbursements? What would be criteria for recording such liabilities?