Pearl Ltd is preparing financial statements for the year ended on 30 June 2021. Identify and match each of the following statements to the most appropriate accounting treatment. An amount of $50 000 owing to Joyce Ltd for services rendered during May 2021. Damages awarded against Pearl Ltd resulting from a court case decided on 20 June 2021. The judge has announced that the amount of damage will be set at a future date, expected to be in September 2021. Pearl Ltd has received advice from its lawyers that the amount of the damages could be anything between $1 million and $3 million. Pearl Ltd involved in a litigation related to their products sold on 1 Feb 2021. Legal advisers estimate that it is reasonably possible that the company will lose the lawsuit. They also estimate the expenditure of this lawsuit to be $10,000. Pearl Ltd operates profitably in a factory that it has leased and on which it pays quarterly rentals. It decides to relocate its operations to another facility. However, the lease on the old facility continues for the next two years. Unfortunately, the lease cannot be cancelled and Pearl Ltd is not allowed to sublet the factory to another party. The expected costs to satisfy this onerous contract are $300,000.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Pearl Ltd is preparing financial statements for the year ended on 30 June 2021. Identify and match each of the following statements to the most appropriate accounting treatment.

An amount of $50 000 owing to Joyce Ltd for services rendered during May 2021.
Damages awarded against Pearl Ltd resulting from a court case decided on 20 June 2021. The judge has announced that the amount of damage will be set at a future date, expected to be in September 2021. Pearl Ltd has received advice from its lawyers that the amount of the damages could be anything between $1 million and $3 million.
Pearl Ltd involved in a litigation related to their products sold on 1 Feb 2021. Legal advisers estimate that it is reasonably possible that the company will lose the lawsuit. They also estimate the expenditure of this lawsuit to be $10,000.
Pearl Ltd operates profitably in a factory that it has leased and on which it pays quarterly rentals. It decides to relocate its operations to another facility. However, the lease on the old facility continues for the next two years. Unfortunately, the lease cannot be cancelled and Pearl Ltd is not allowed to sublet the factory to another party. The expected costs to satisfy this onerous contract are $300,000.

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