Question

Q3. Jamil Berhad prepares financial statements for the year ended 31 December 2018. The financial statements are expected to be authorised for issue on 20 April 2019. The following events have taken place:

(i) A health and safety investigation of an incident which occurred in 2018 was concluded in February 2019, resulting in RM2.5 million fine for Jamil Berhad. A provision for RM0.5 million had been recognised in Jamil Berhad’s financial statements for the year ended 31 December 2018.

(ii) Jamil Berhad’s professional fees for the year ended 31 December 2018 are still under negotiation. Jamil Berhad paid RM15,000 for audit fees and RM1,200 for secretarial fees in the preceding years.

(iii) During the year 2018, the company unintentionally released poisonous gases into the atmosphere which resulted in serious complaints from local residents. Some have claimed become very ill. A law firm representing the affected residents has submitted a compensation claim to Jamil for pain and suffering of between RM100,000 to RM500,000 for each affected resident. There were in total of 16 residents reported being affected by this poisonous gas. The court hearing is scheduled on May 2019. The company does not believe that they will be required to make any payments to claimants, as this was an accident and noone has been seriously harmed as a result.

(iv) The accountant notes that an electricity invoice for the last six months' usage has not been received.

(v) Inventory reported on the statement of financial position includes goods costing RM30,000 that were shop soiled and could only be sold for RM21,000 after reconditioning them at a cost of RM3,000. This was detected on 31 December 2018.

(vi) An outstanding court case at 31 December 2018 relating to faulty goods supplied by Jamil Berhad. Legal advice states that there is a small chance that they will have to pay out RM4 million, but the most likely outcome is believed to be a payout of RM6 million. Either way, Jamil Berhad will have to pay legal fees amounting RM0.1 million. Jamil Berhad believes the fault lies with the supplier, and is pursuing a counter-claim. Legal advice states that it is possible, but not likely, that this action will succeed. Required: Explain the most correct approach of accounting treatments for all the above. Your answer shall make reference to relevant MFRS Standards.

Answer 1

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