The Chief Financial Officer of ABC Ltd company which is a renowned construction company of the city whicle preparing the Financial Statements of the year came to know following matters that should be settled in the light of IAS-37 and you being an IAS/IFRS consultant is asked to give advice on them

1.A customer has lodged a complaint during the year for repair maintenance of his purchased building, which has a big crake on the main gate wall. Management is of view that it is due to negligence during the construction by the labor. Therefore, company is in negotiation with customer and it is expected that the cost of Rs.500,000 will have to be paid by the company for settlement of complaint.

2.In continuation of above para (1), ABC Ltd has constructed this building from another construction company XYZ Ltd and management is of view that under the contract clauses signed with XYZ Ltd, management of ABC Ltd will seek reimbursement from XYZ Ltd of payment Rs.500,000/- that will be made to customer.

3.Company has policy to give three month time for all customers and all defects detected during this period are repaired by the company on immediate basis. During the start of the year provision under this head of repair maintenance is available of Rs. 180,000 however, expected cost of repair maintenance to complete contracts at year end is Rs.120,500.

4.Architect of the company has lost his personal computer on the site of the company and he has field suit against the company for payment of cost of the computer alongwith damages of worth Rs. 300,000 for loss of important files saved in the computer. Company's legal advisor is of opinion that court will might be ordered company to pay trivial amount to compensate for the cost of the computer, however, it is the responsibility of architect to the take proper back up of the laptop, therefore nothing will be charged to company.

Answer rating: 100% (QA)

Answer Dear CFO I have reviewed the matters you have presented and here is my advice based on the principles of IAS 37 Provisions Contingent Liabiliti... View the full answer