Stag, a public limited company, is preparing its financial statements for the year ending 31 December 2021. The exhibits contain information relevant to the question. Exhibit 3 – Provision The following events occurred during the year ended 31 December 2021 In August 2021, Stag relocated to new office premises. The lease on the old premises runs to 31 December 2022 at a rent of £150,000 per year. Stag has been unable to find a tenant to sub-let the old office premises. Stag owns a fleet of motor lorries, a law passed in September 2021 requires safety inspections at a cost of £150,000 by trained inspectors with a good knowledge of the appropriate Driver and Vehicle Standards Agency (DVSA) inspection manuals. This safety inspection needs to be conducted by March 2022. The work has not yet been carried out. Stag is also facing a legal claim for £135 million from a competitor who claims they have breached a patent in one of their processes. Stag has obtained legal advice that the claim has little chance of success and the insurance advisers have indicated that to insure against losing the case would cost £10 million as a premium. Requirement: As the financial director of Stag, explain how Stag plc should account for each of the activities for the year ended 31 December 2021. You should justify your answers with reference to relevant IFRS Standards.

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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Stag, a public limited company, is preparing its financial statements for the year ending 31 December 2021. The exhibits contain information relevant to the question.

Exhibit 3 – Provision

The following events occurred during the year ended 31 December 2021

In August 2021, Stag relocated to new office premises. The lease on the old premises runs to 31 December 2022 at a rent of £150,000 per year. Stag has been unable to find a tenant to sub-let the old office premises.
Stag owns a fleet of motor lorries, a law passed in September 2021 requires safety inspections at a cost of £150,000 by trained inspectors with a good knowledge of the appropriate Driver and Vehicle Standards Agency (DVSA) inspection manuals. This safety inspection needs to be conducted by March 2022. The work has not yet been carried out.
Stag is also facing a legal claim for £135 million from a competitor who claims they have breached a patent in one of their processes. Stag has obtained legal advice that the claim has little chance of success and the insurance advisers have indicated that to insure against losing the case would cost £10 million as a premium.

Requirement:

As the financial director of Stag, explain how Stag plc should account for each of the activities for the year ended 31 December 2021. You should justify your answers with reference to relevant IFRS Standards.

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