Fur Fiesta Limited is a renowned zoo which is always in the spotlight due to the many different animals it houses. Company policy of Fur Fiesta Limited states that all enclosures and barriers are required to be replaced every five years. The Financial Manager of Fur Fiesta Limited is aware of this and knows that the next replacement will be done in four years’ time and all the removed enclosures and barriers will be scrapped. It is estimated that that the new enclosures and barriers will cost R5 000 000 (the PV thereof is R1 000 000). The Financial Manager wishes to provide 25% of this expected cost of R5 000 000 in the current year ended 30th June 2023. REQUIRED: Discuss whether the recognition of the provision in the financial statements of Fur Fiesta Limited for the year ended 30 June 2023, is acceptable or not. Your answer must be in terms of International Financial Reporting Standard, IAS37, Provisions & Contingencies.
Fur Fiesta Limited is a renowned zoo which is always in the spotlight due to the many different animals it houses. Company policy of Fur Fiesta Limited states that all enclosures and barriers are required to be replaced every five years. The Financial Manager of Fur Fiesta Limited is aware of this and knows that the next replacement will be done in four years’ time and all the removed enclosures and barriers will be scrapped. It is estimated that that the new enclosures and barriers will cost R5 000 000 (the PV thereof is R1 000 000). The Financial Manager wishes to provide 25% of this expected cost of R5 000 000 in the current year ended 30th June 2023. REQUIRED: Discuss whether the recognition of the provision in the financial statements of Fur Fiesta Limited for the year ended 30 June 2023, is acceptable or not. Your answer must be in terms of International Financial Reporting Standard, IAS37, Provisions & Contingencies.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Fur Fiesta Limited is a renowned zoo which is always in the spotlight due to the many different
animals it houses. Company policy of Fur Fiesta Limited states that all enclosures and barriers are
required to be replaced every five years. The Financial Manager of Fur Fiesta Limited is aware of
this and knows that the next replacement will be done in four years’ time and all the removed
enclosures and barriers will be scrapped. It is estimated that that the new enclosures and barriers
will cost R5 000 000 (the PV thereof is R1 000 000). The Financial Manager wishes to provide 25%
of this expected cost of R5 000 000 in the current year ended 30th June 2023.
REQUIRED:
Discuss whether the recognition of the provision in the financial statements of Fur Fiesta Limited for
the year ended 30 June 2023, is acceptable or not. Your answer must be in terms of International
Financial Reporting Standard, IAS37, Provisions & Contingencies.
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