Problem 4-5 (IFRS) A Singapore-based shipping entity lost an entire shipload of cargo valued at P5,000,000 on a voyage to Australia. It is however covered by an insurance policy. According to the report of the investigator, the amount is collectible, subject to the deductible clause in the insurance policy. Before year-end, the shipping entity received a letter from the insurance entity that a check was in the mail for 90% of the claim. The international freight forwarding entity that entrusted the shipping entity with the delivery of the cargo overseas has filed a lawsuit for P5,000,000 claiming the value of the cargo that was lost on high seas, and also consequential damages of P2,000,000 resulting from the delay. According to the legal counsel for the shipping entity, it is probable that the shipping entity would have to pay the P5,000,000. However, it is a remote possibility that it would have to pay the additional P2,000,000 claimed by the international freight forwarding entity, since this loss was specifically excluded in the freight forwarding contract. Required: Determine the amount of provision at year-end. Explain fully your answer.
Problem 4-5 (IFRS)
A Singapore-based shipping entity lost an entire shipload of cargo valued at P5,000,000 on a voyage to Australia. It is however covered by an insurance policy.
According to the report of the investigator, the amount is collectible, subject to the deductible clause in the insurance policy.
Before year-end, the shipping entity received a letter from the insurance entity that a check was in the mail for 90% of the claim.
The international freight forwarding entity that entrusted the shipping entity with the delivery of the cargo overseas has filed a lawsuit for P5,000,000 claiming the value of the cargo that was lost on high seas, and also consequential damages of P2,000,000 resulting from the delay.
According to the legal counsel for the shipping entity, it is probable that the shipping entity would have to pay the P5,000,000.
However, it is a remote possibility that it would have to pay the additional P2,000,000 claimed by the international freight forwarding entity, since this loss was specifically excluded in the freight forwarding contract.
Required:
Determine the amount of provision at year-end. Explain fully your answer.
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