Problem Solving #1

Provisions have to be made for the following items in the financial statements of Jamell Ltd. for the year ended June 30, 2019. 1. Jamell sells photocopiers. The following details are available:

Product type Warranty period Number of sales (units) in year

X25 1 year 400

X25S 1 year 310

X30 2 years 250

The company offers an expense-type warranty and estimates that 15%, 12% and 20% of X25, X25S and X30, respectively, will require repair within the warranty period. P a g e 9 | 12 Estimated average repair costs are $150, $200 and $220 for X25, X25S and X30, respectively. During the current year, $15,500 was paid to repair photocopiers sold in the year: $9,800 for the two X25 models and the remainder for the X30 model. Note that there are no opening balances Explain, using appropriate figures, the effects of the above on the financial statements of Jamell for the year ended June 30, 2019.

Question # 2

a) TechIT, a technology company is being sued for patent infringement. The legal counsel believes that TechIT will win the case and the plaintiff does not have a strong case and estimates a 9% chance of success. The maximum amount of damage that could be awarded by a jury is $20,000

b) A life insurance company has a lawsuit outstanding. The company's legal counsel advises that there is a 65% probability that the company will be found liable. The plaintiff will be awarded between $75,000 and $90,000, with all estimates in the range equally likely

c) Buildright Ltd., a construction company, is being sued by one its customers for defects in the construction of a building. Legal counsel believes that the plaintiff has an 80% probability of success. Assuming that the plaintiff is successful, counsel believes that there is a 60% probability of a $135,000 award; a 30% probability of a $150,000 award; and a 15% probability of a $270,000 award.

Determine the amount that should be accrued for the provision and the appropriate accounting treatment. Assume the company in each scenario uses IFRS

Question 3

BestFurn Corp. is a publicly reportable enterprise. At the end of its December 31, 2018, fiscal year, the company tested its cash-generating units (CGU) for impairment. The details of BestFurn's analysis appear as follows:

Details CGU I CGU II CGU III CGU Total

Net Book Value $3,500,000 $4,600,000 $2,700,000 $10,800,000

Fair Value less Cost to sell $4,000,000 $3,500,000 $1,900,000 $9,400,000

Value in use not Not Not

determinable determinable determinable $9,200,000

Required: Prepare the journal entries that BestFurn will need to record for the year ended December 31, 2018, to account for the impairment of the company's assets. Assume that there have been no prior revaluations of these assets.