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Hi
The accident at Ledge Hill Mine.
Based on the answer provided, relating to provisions, it states that, provisions are made because the company has met the expenses of residence implying that they recognise a liability.
But, I was told that because the directors have not made a statement promising to the compensate.IT depends on the obligation and because of the valid expectation. The a provision can be made.
Should we be saying that provisions are made/ can be made?
thanks
This is the ACCA answer to the provision matter:
” …a provision should be recognised if there is a present obligation as a result of a past event, a probable outflow of economic benefits, and a reliable estimate can be made.
It seems that the criteria have been met, as the accident happened before the year end and gives rise to an obligating event. Dasset Co is meeting all expenses of the residents who have been relocated, so the company appears to be acknowledging responsibility for the accident and its impact on the residential properties.
The damage to the properties will result in a cash outflow for the company whether they have to be demolished or repaired, and the expert should be able to provide a reliable estimate of the amount. Therefore a provision should be recognised.”
Does that clear up any confusion?
Thanks Mike.
Yes, that was my point as well. I assumed obligation has been met since Dasset is meeting the expenses of the residents.
But, I was told by a tutor that obligation only exist if/when director/company releases an announcement promising compensation.
As ,that would only give rise to a valid expectation.Hence, i wanted a second opinion.
“But, I was told by a tutor that obligation only exist if/when director/company releases an announcement promising compensation.”
You are in the happy position of being able to tell the tutor that his information is misguided – I very nearly wrote, instead of ‘misguided’, something that would have likely been considered unprofessional!
Marks and Spencer have never issued an announcement (to my knowledge) that they will give full refunds for returned goods
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