Stanmore plc is preparing its financial statements for the year ended 30th April 2021. There are...

 

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Stanmore plc is preparing its financial statements for the year ended 30th April 2021. There are two events that have been brought to your attention, in order to finalise the financial statements. i. An employee is claiming damages of £150,000 against Stanmore because of injuries received while driving one of the company's delivery vans in September 2020. The employee claims that Stanmore was negligent in its maintenance of the van and that the van crashed, whilst the employee was driving it, because of poor maintenance. Stanmore's lawyers are of the opinion that the probability of the employee winning the case is 80%. ii. Stanmore is making a claim for damages of £250,000 against a contractor to cover the additional costs of making good faulty work on a contract. The contractor had refused to make good the work because they were too busy with work on other contracts. Stanmore's lawyers are of the opinion that the probability of winning the claim is 85%. You should assume that all amounts are material. Required: For each of the two legal claims Stanmore is involved in, discuss whether a provision should be made in the financial statements for the year ended 30h April 2021. If you are making a provision, give the journal (double entries) required. If a provision is not required, please state, giving reasons, what other action you would take, if any. Stanmore plc is preparing its financial statements for the year ended 30th April 2021. There are two events that have been brought to your attention, in order to finalise the financial statements. i. An employee is claiming damages of £150,000 against Stanmore because of injuries received while driving one of the company's delivery vans in September 2020. The employee claims that Stanmore was negligent in its maintenance of the van and that the van crashed, whilst the employee was driving it, because of poor maintenance. Stanmore's lawyers are of the opinion that the probability of the employee winning the case is 80%. ii. Stanmore is making a claim for damages of £250,000 against a contractor to cover the additional costs of making good faulty work on a contract. The contractor had refused to make good the work because they were too busy with work on other contracts. Stanmore's lawyers are of the opinion that the probability of winning the claim is 85%. You should assume that all amounts are material. Required: For each of the two legal claims Stanmore is involved in, discuss whether a provision should be made in the financial statements for the year ended 30h April 2021. If you are making a provision, give the journal (double entries) required. If a provision is not required, please state, giving reasons, what other action you would take, if any.