Payable Provision Contigent

During its accounting year end to 30 April 20X1, Earth Co agreed with Trader Co, who it both purchased goods from, and sold goods to, on credit terms, to contra an amount of $1,500 off the balances due to each other. What accounting entries should Earth Co make in its general ledger to record this situation?

• Dr Trade receivables $1,500 Cr Trade payables $1,500
• Dr Trade payables $1,500 Cr Trade receivables $1,500
• Dr Sales $1,500 Cr Purchases $1,500
• Dr Purchases $1,500 Cr Sales $1,500

G Co is both a customer of, and supplier to Zed Co. As at 31 May, 20X4, G Co’s accounting records identified the following account balances with Zed Co: a receivable ledger balance of $2,500 and a payable ledger balance of $850. G Co and Zed Co agree to contra the maximum possible amount in their respective accounting records. What accounting entries should G Co make in its general ledger to account for the maximum possible contra with Zed Co?

• Dr Receivables $850 Cr Payables $850
• Dr Payables $2,500 Cr Receivables $2,500
• Dr Payables $850 Cr Receivables $850
• Dr Receivables $2,500 Cr Payables $2,500

What is the purpose of supplier statements?

• The supplier statement is a demand from the supplier to reconcile that statement with its own records and to inform the supplier of any discrepancies.
• The supplier statement acts as an immediate demand for payment in full from supplier to a customer
• It is a record of transactions recorded by a purchaser and issued to a supplier as a request to settle amounts due
• It is a record of transactions recorded by seller and issued to the customer as a request to settle amount due

Which of the following statements about the requirements relating to IAS 37 Provisions, Contingent Liabilities and Contingent Assets are correct? 1 A contingent asset should be disclosed by note if an inflow of economic benefits is probable. 2 No disclosure of a contingent liability is required if the possibility of a transfer of economic benefits arising is remote. 3 Contingent assets must not be recognised in financial statements unless an inflow of economic benefits is virtually certain to arise.

• 1, 2 and 3
• 1 and 2 only
• 1 and 3 only
• 2 and 3 only

Which one of the following statements relating to the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets is correct?

• A contingent asset must always be recognised and accounted for in the financial statements.
• A contingent asset must always be disclosed in the notes to the financial statements.
• A contingent liability must always be disclosed in the notes to the financial statements if it is regarded as possible.
• A contingent liability must always be disclosed in the notes to the financial statements if it is regarded as probable.

During the year ended 30 April 20X7 Doolittle Co experienced a number of difficulties with employees. On 1 April 20X7 Doolittle Co dismissed an employee and subsequently received notice of a claim for unfair dismissal amounting to $50,000. Another employee suffered personal injury on 30 March 20X7 whilst operating machinery at work. On 30 May Doolittle Co received notice of a claim from that employee for compensation of $100,000. Doolittle Co’s legal representatives have advised that the claim for unfair dismissal will probably be successful and result in a compensation award of $50,000 to the employee. The lawyer also advised that the compensation claim for injury suffered is regarded as possible, but not probable, that compensation will be payable. In the event that compensation was payable for personal injury suffered, an amount of $100,000 is a reliable estimate. How should this information be accounted for in the financial statements of Doolittle Co for the year ended 30 April 20X7?

• A provision should be recognised in the financial statement for $50,000 only.
• A provision should be recognised in the financial statements for $50,000 plus a disclosure note included of the possible compensation payment relating to the personal injury claim.
• A provision should be recognised in the financial statements for $150,000 only.
• A provision should be recognised in the financial statements for $150,000 and a disclosure note included of the possible compensation payment relating to the personal injury claim.

Electrode Co manufactures vacuum cleaners and allows customers three months from the date of purchase to return cleaners if they are dissatisfied with the product for any reason. At 31 May 20X8, Electrode Co included a provision of $10,000 in the financial statements relating to the expected return of cleaners which had been sold before the year-end date. At 31 May 20X9, Electrode Co estimated that the amount of the provision should be changed to $13,000. How should this information be accounted for in Electrode Co’s financial statements for the year ended 31 May 20X9?

• Dr Other comprehensive income $3,000 Cr Provision $3,000
• Dr Provision $3,000 Cr Other comprehensive income $3,000
• Dr Profit or loss $3,000 Cr Provision $3,000
• Dr Provision $3,000 Cr Profit or loss $3,000

Driller Co undertakes oil and gas exploration activities. One of the conditions of the operating licence is that Driller must make good any damage caused to the local environment as a result of its exploration activities. As at the year-end date of 31 August 20X4, Driller Co estimated that the cost of rectifying damage already caused at current exploration sites at $5 million. At that date Driller Co estimated that that the cost of rectifying expected future damage at current exploration sites at an additional $20 million. Driller Co also estimated that all current exploration sites will operate until 20X7 or beyond that date. How should this information be reported in the financial statements of Driller Co for the year ended 31 August 20X4?

• As a provision classified as a current liability for $5 million
• As a provision classified as a current liability for $25 million
• As a provision classified as a non-current liability for $5 million
• As a provision classified as a non-current liability for $25 million

Recently, users of a new perfume have suffered blistering of the skin along with considerable pain and discomfort. Following investigation by the manufacturer, Fleur Co, it appears that product contamination occurred during the bottling process which was performed by Bottler. Fleur Co’s legal representatives have advised it that it is probable that customers will make valid compensation claims totalling $3 million and that it is probable Fleur Co will be able to successfully counter-claim against Bottler for the same amount. How should this information be reported in the financial statements of Fleur Co for the year ended 31 August 20X4?

• There should be a provision for $3 million only recognised in the statement of financial position.
• There should be a provision and an asset, each for $3 million, recognised in the statement of financial position.
• No provision or asset should be recognised in the statement of financial position as the two amounts cancel each other.
• There should be a provision for $3 million in the statement of financial position and a disclosure note only to deal with the contingent asset of the amount which may be recovered from Bottler