State with reasons what adjustments, if any, should be made by the company in the financial statements?
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The draft financial statements of Madras, a limited liability company, for the year ended 31 December 2022 is currently under review. The following points have been raised: a. An ex-employee has started an action against the company for wrongful dismissal. The company's legal team have stated that the ex-employee is not likely to succeed. The following estimates have been given by the lawyers relating to the case: į. Legal costs (to be incurred whether the claim is successful or not) P50,000 ii. Settlement of claim if successful P150,000. Currently no provision has been made by the company in the financial statements. b. The company has a policy of refunding the cost of any goods returned by dissatisfied customers, even though it is under no legal obligation to do so. This policy of making refunds is generally known. At the year-end returns totalling P48,000 have been made. C. claim has been made against a company for injury suffered by a pedestrian in connection with building work by the company. Legal advisers have confirmed that the company will probably have to pay damages of P100,000 but that a counterclaim made against the building I subcontractors for P50,000 would probably be successful. The draft financial statements of Madras, a limited liability company, for the year ended 31 December 2022 is currently under review. The following points have been raised: a. An ex-employee has started an action against the company for wrongful dismissal. The company's legal team have stated that the ex-employee is not likely to succeed. The following estimates have been given by the lawyers relating to the case: į. Legal costs (to be incurred whether the claim is successful or not) P50,000 ii. Settlement of claim if successful P150,000. Currently no provision has been made by the company in the financial statements. b. The company has a policy of refunding the cost of any goods returned by dissatisfied customers, even though it is under no legal obligation to do so. This policy of making refunds is generally known. At the year-end returns totalling P48,000 have been made. C. claim has been made against a company for injury suffered by a pedestrian in connection with building work by the company. Legal advisers have confirmed that the company will probably have to pay damages of P100,000 but that a counterclaim made against the building I subcontractors for P50,000 would probably be successful.
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Based on the information provided the following adjustments should be made to the financial statemen... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
Posted Date:
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