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Financial Accounting Analyses

   

Added on  2020-02-24

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FINANCIALACCOUNTINGTutorial – Week 6STUDENT ID:[Pick the date]
Financial Accounting Analyses_1
FINANCIAL ACCOUNTINGPRACTICAL QUESTION a)Present obligation: Yes as the underlying obligating event on account of the company’sprovision in relation to the two year warranty resulting in a legal obligation.Probable outflow: Yes as on account of empirical evidence, the company would haveknowledge regarding warranty related claims which may be expected.Reliable estimate: Yes as estimation could be performed on the basis of claims in the past.This approach is supported by paragraph 36, AASB 137 which outlines that the provisionamount should be the best possible estimate in relation to the expenditure to be incurred forsettling the obligation currently being presented.Treatment: This would be recognised in the balance sheet in the form of provision on thebasis of estimate derived from previous experience. b)Present obligation- The company has the obligation to provide compensation for possiblecontamination resulting from the burnt chemical. Although the company has no obligationto rectify the damage caused to the environment but it is a constructive obligation.Probable outflow- Since there has been occurrence of damage and the commitment has beenmade on the part of the company, hence there would be outflow.Reliable estimate- Reliable estimation in line with paragraph 36, AASB 137 is possible andhence taking into account the actual estimation of cost incurred during repair, a reliableestimation may be drawn.Treatment: This would be recognised in the balance sheet in the form of provision on thebasis of estimate of environment damage repair.c)Present obligation- In case the restructuring affects any managers in an adverse manner,then the company would need to provide compensation to the same and hence anobligation is present.Probable Outflow – It is highly likely that some of the managers would be adverselyimpacted and hence there would be probable outflow. Reliable estimate – Reliable estimation is possible as the proposal by the management isdetailed enough based on which the potential impact can be judged.Treatment: This would be recognised in the balance sheet in the form of provision on thebasis of estimate of potential compensation to adversely impacted managers.d) Present obligation- The company is in the process of taking legal advice and it is yet to beestablished that for the damages caused, the company is liable. Hence, there is no presentobligation.Possible obligation- Yes, it may arise.
Financial Accounting Analyses_2

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