In June 2019, Buwis Buhay was involved in a court case amounting to P10,000,000. The attorney assessed that it is probable that the company will win the case with P4,500,000 as the best estimate of the reward. 2010
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Buwis Buhay Incorporated had several outstanding obligations on December 31, 2019. The brief descriptions listed below can be ascertained from these liabilities. What is the correct treatment for the court case that happened on June 2019?
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- Eradicate Now’ is an extermination company that specializes in pest control. On September 19, 2020, the company was identified as being potentially responsible for causing serious damages to the environment by the Environmental Regulatory Agency. The company’s management team met with it’s lawyers and concluded that it is probable that it will be held responsible for the damages caused. A reasonable estimate of the damages was $2,000,000. ‘Eradicate Now’ has an insurance policy of $10,000,000 with a deductible clause of $300,000.How should ‘Eradicate Now’ report this information on its financial statements for the year ended December 31, 2020On December 31, 2019, the Board of Directors of EFF Company committed to a plan to discontinue the operations of its furniture division. The entity estimated that the furniture’s operating loss for 2020 would be ₱500,000 and that the fair value of its facilities was ₱300,000 less than the carrying amount. The furniture division’s 2019 operating loss was ₱1,400,000 and the division was actually sold for ₱400,000 less than the carrying amount in 2020. The effective tax rate is 30%. What amount should be reported as loss from discontinued operations in 2019? ₱ 1,190,000 ₱ 0 ₱ 1,400,000 ₱ 980,000In 2018 waste from Beef Limited destroyed a section of Suffers Heights. Members of the community demonstrated, and the company (Beef Limited) restored the land at a cost of $830,000. In 2019 another section of Suffers Heights was destroyed. The Suffers Heights Citizens Association submitted an estimate for $550,000 to restore the land. Beef Limited is refusing to pay, indicating that the other three companies in the community should pay 75% of the restoration costs. In 2018 the other three companies had refused to pay any of the restoration costs. Beef Limited year-end is December 31, 2019. Required: Explain the accounting treatment in the books of Beef Limited for the $550,000 estimate submitted by Suffers Heights Citizens Association for the financial year ended December 31, 2019. Support your answer with the relevant IFRS.
- Beautiful Company is involved in litigation regarding a faulty product sold in a prior year during 2021. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be P500,000.How much is the Provision to be reported at December 31, 2021?Sheila Company is engaged in the manufacture of chemicals which it exports to other countries. On December 25, 2021, one of its tanks in the production assembly plant exploded. Unfortunately one of its employees was caught by the accident and suffered severe burns all over his body. For damages sustained because of the explosion, the employee sued Sheila and claimed an amount totaling P10,000,000 for physical injuries sustained. The lawyers of Sheila expect that Sheila Company will probably lose the lawsuit and estimate that the company may have to pay an amount in the range of P5,000,000 to P8,000,000. On March 15, 2022, upon the advice of his lawyers, the injured employees offered to have an out of court settlement of P7,500,000. The offer was tendered on the same date and Sheila on the advice of its legal counsel accepted the said offer on March 20, 2022. Sheila’s financial statements for the year ended 2021 was issued on March 30, 2022. Sheila’s financial statements for the year…Eradicate Now’ is an extermination company that specializes in pest control. OnSeptember 19, 2020, the company was identified as being potentially responsible forcausing serious damages to the environment by the Environmental Regulatory Agency.The company’s management team met with it’s lawyers and concluded that it is probablethat it will be held responsible for the damages caused. A reasonable estimate of thedamages was $2,000,000.‘Eradicate Now’ has an insurance policy of $10,000,000 with a deductible clause of$300,000.RequiredHow should ‘Eradicate Now’ report this information on its financial statements for theyear ended December 31, 2020?
- Fresh Limited, a manufacturer of toothpaste, was taken to court over alleged defamation charges when the company accused a rival toothpaste manufacturer of fraud. Before year end (31 December 2018), the lawyer of Fresh Limited advised that, although losing the case was unlikely, legal fees and settlement costs could amount to $ 900 000 in the event that the court case was lost. On 04 February 2019, the judge presiding over the case ruled that Fresh should pay $ 1 000 000 to the plaintiff as well as pay all of the plaintiff's legal fees, which amounted to $ 180 000. The financial statements had not yet been authorized for issue at the time of the court ruling. Required: Discuss how this information should be treated in the financial statements of Fresh Limited for the year ended 31 December 2018On Dec. 31, 2020, an employee filed a P3,000,000 lawsuit against Siomai Company for damages suffered when one of Siomai’s plants exploded on July 20, 2020. Siomai’s legal counsel expects the company will lose the lawsuit and estimates the loss to be between P500,000 and P1,500,000. The employee has offered to settle the lawsuit out of court for P900,000 but Siomai will not agree to the settlement. In its Dec. 31, 2020 statement of financial position, what amount should Siomai Company report as a provision from the lawsuit?On February 5, 2020, an employee filed a P2,000,000 lawsuit against Superman Company for damages suffered when plant of the entity exploded on December 29, 2019. The entity's legal counsel believed the entity will probably lose the lawsuit and estimated the loss to be P500,000. The employee has offered to settle the lawsuit out of court for P900,000 but the entity will not agree to the settlement. On December 31, 2019, what amount should be reported as accrued liability.
- In 2019, five people died in a car accident, possibly due to the products sold by SH Limited. Legal proceedings are started seeking damages of $3 million from SH Limited. Up to the date of approval of financial statements for the year ended 31 December 2019, the lawyers of SH Limited advised that it is probable that it will not be found liable. However, when SH Limited prepares the financial statements for the year ended 31 December 2020, its lawyers advised that, owing to developments in the case, it is probable that it will be found liable. According to HKAS 37 Provisions, Contingent Liabilities and Contingent Assets, what accounting treatment for SH Limited is required: (a) at 31 December 2019 (b) at 31 December 2020a. Princess Town Insurance Inc., located in a country which has a capital gains tax, purchased a building in February 2018 for $26,000,000. In March 2019, they spent $1, 800,000 to install solar panels for electricity in the building. The building was sold for $39,000,000 in 2020. The annual maintenance cost was $500,000. The cost of advertising the sale of the building and the legal fees amounted to $1,950,000.Capital losses were as follows:2017 - $200,0002018 - $250,000Required:Calculate the capital gains tax in 2020, assuming a capital gains tax of 20% B. Explain whether the following transaction would give rise to a capital gain charge:(a) Winnings from legal gambling(b) Gains on disposal of copyright for a play by the Institute of Culture.(c) Gains arising from damages to a warehouse building which contained goods for resale. The damage was so severe the building had to be demolished. A large sum of insurance proceeds was received.(d) Gains on the disposal of shares in an…On November 25, 2020, an explosion occurred at a Brit company plant causing extensive property damage to area buildings. By March 10, 2021, claims had been asserted against Brit Company. The management and counsel concluded that it is probable Brit Company will be responsible for damages, and that P3,500,000 would be a reasonable estimate of the liability. The entity's P10,000,000 comprehensive public liability policy has a P500,000 deductible clause. The financial statements for 2020 were issued on March 25, 2021. What amount of loss from lawsuit should be reported in the income statement for 2020? What amount of liability from lawsuit should be reported on December 31, 2020?