SRJ Bhd (SRJ) has two divisions in two different business segments. The first division is in the medical devices manufacturing business. In July 2020, the company was presented with a lawsuit by a group of customers. The customers claimed that SRJ has provided them with inaccurate blood glucose readers that have jeopardised their health and life. Based on the evidence and advice by the company’s legal team, it is possible for SRJ to lose the lawsuit. However, until the end of December 2020, the timing and amount of the lawsuit is yet to be estimated. The next proceeding shall be proceeded in the year 2021. The second division of SRJ is located in country B. The main business activity of this division is producing manual transmission for car industry. However, due to changes of consumers’ preference toward automatic transmission car and lack of demand on manual transmission vehicles, the company is planning to close the division to avoid future losses. The board of directors has announced the plan to close the division in a press conference held on February 2020. A detail plan has been prepared with the expected date of closure is by the end of November 2020. The estimated restructuring costs is RM45,000,000. Additional information: The financial year end for SRJ Bhd is on 31 December. REQUIRED: Discuss the appropriate accounting treatment for each of the above situations faced by SRJ Bhd in the financial year 2020 by referring to MFRS 137 Provisions, Contingent Liabilities and Contingent Assets.
SRJ Bhd (SRJ) has two divisions in two different business segments. The first division is in the medical devices manufacturing business. In July 2020, the company was presented with a lawsuit by a group of customers. The customers claimed that SRJ has provided them with inaccurate blood glucose readers that have jeopardised their health and life. Based on the evidence and advice by the company’s legal team, it is possible for SRJ to lose the lawsuit. However, until the end of December 2020, the timing and amount of the lawsuit is yet to be estimated. The next proceeding shall be proceeded in the year 2021.
The second division of SRJ is located in country B. The main business activity of this division is producing manual transmission for car industry. However, due to changes of consumers’ preference toward automatic transmission car and lack of demand on manual transmission vehicles, the company is planning to close the division to avoid future losses. The board of directors has announced the plan to close the division in a press conference held on February 2020. A detail plan has been prepared with the expected date of closure is by the end of November 2020. The estimated restructuring costs is RM45,000,000.
Additional information:
The financial year end for SRJ Bhd is on 31 December.
REQUIRED:
Discuss the appropriate accounting treatment for each of the above situations faced by SRJ Bhd in the financial year 2020 by referring to MFRS 137 Provisions,
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