Identify whether each of the following would be a liability, a provision or a contingent liability, or none of the above, in the financial statements of company A as at the end of the reporting period of 30 June 2013. Assume that company A’s financial statements are authorised for issue on 24 August 2013. (a) An amount of $35 000 owing to company Z for services rendered during May 2013 (b) Long-service leave, estimated to be $500 000, owing to employees in respect of past services (c) Costs of $26 000 estimated to be incurred for relocating employee D from company A’s head office location to another city. The staff member will physically relocate during July 2013 (d) Provision of $50000 for overhaul of a machine. The overhaul is needed every five years and the machine was five years old as at 30 June 2013 (e) Damages awarded against Company A resulting from a court case decided on 26 June 2013. The judge has announced that the amount of damages will be set at a future date, expected to be in September 2013. Company A has received advice from its lawyers that the amount of the damages could be anything between $20 000 and $7million.
Identify whether each of the following would be a liability, a provision or a contingent liability, or none of the above, in the financial statements of company A as at the end of the reporting period of 30 June 2013. Assume that company A’s financial statements are authorised for issue on 24 August 2013. (a) An amount of $35 000 owing to company Z for services rendered during May 2013 (b) Long-service leave, estimated to be $500 000, owing to employees in respect of past services (c) Costs of $26 000 estimated to be incurred for relocating employee D from company A’s head office location to another city. The staff member will physically relocate during July 2013 (d) Provision of $50000 for overhaul of a machine. The overhaul is needed every five years and the machine was five years old as at 30 June 2013 (e) Damages awarded against Company A resulting from a court case decided on 26 June 2013. The judge has announced that the amount of damages will be set at a future date, expected to be in September 2013. Company A has received advice from its lawyers that the amount of the damages could be anything between $20 000 and $7million.
Identify whether each of the following would be a liability, a provision or a contingent liability, or none of the above, in the financial statements of company A as at the end of the reporting period of 30 June 2013. Assume that company A’s financial statements are authorised for issue on 24 August 2013. (a) An amount of $35 000 owing to company Z for services rendered during May 2013 (b) Long-service leave, estimated to be $500 000, owing to employees in respect of past services (c) Costs of $26 000 estimated to be incurred for relocating employee D from company A’s head office location to another city. The staff member will physically relocate during July 2013 (d) Provision of $50000 for overhaul of a machine. The overhaul is needed every five years and the machine was five years old as at 30 June 2013 (e) Damages awarded against Company A resulting from a court case decided on 26 June 2013. The judge has announced that the amount of damages will be set at a future date, expected to be in September 2013. Company A has received advice from its lawyers that the amount of the damages could be anything between $20 000 and $7million.
Identify whether each of the following would be a liability, a provision or a contingent liability, or none of the above, in the financial statements of company A as at the end of the reporting period of 30 June 2013. Assume that company A’s financial statements are authorised for issue on 24 August 2013. (a) An amount of $35 000 owing to company Z for services rendered during May 2013 (b) Long-service leave, estimated to be $500 000, owing to employees in respect of past services (c) Costs of $26 000 estimated to be incurred for relocating employee D from company A’s head office location to another city. The staff member will physically relocate during July 2013 (d) Provision of $50000 for overhaul of a machine. The overhaul is needed every five years and the machine was five years old as at 30 June 2013 (e) Damages awarded against Company A resulting from a court case decided on 26 June 2013. The judge has announced that the amount of damages will be set at a future date, expected to be in September 2013. Company A has received advice from its lawyers that the amount of the damages could be anything between $20 000 and $7million.
Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.
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