- June 22, 2020 at 6:43 am
I think there is a mistake in the answer for question 117 (page 140) relating to “Provisions”. It asks whether a provision is required or not (the answers are confusing since it says that there is no provision while also It’s highlighted as if there was one). Question:
1) Aston Ltd has a policy of cleaning up any environmental contamination caused by its operations, but is not legally obliged to do so.
2) Brum Ltd is leasing an office building for which it has no further use. The lease contract is non-cancellable and the office building cannot be sub-let to a third party.
3) Coleshill Co is closing down a division. The board has prepared detailed closure plans which have been communicated to customers and employees.
4) Dudley Co has acquired a machine which requires a major overhaul every three years. The cost of the first overhaul reliable estimated at $120,000.
Can you please clarify which ones have provision and not. Is it Yes, Yes, Yes, No?
It’s my first topic here. Maybe someone has already asked this question, I couldn’t search for a particular one.
Kind regardsJune 23, 2020 at 4:34 pm
Welcome to OT if this is your first time.
1) No provision as there is no legal obligation and there is no constructive one either as they don’t say anywhere that they will clean it up.
2) This is an onerous contract as the cost of using it (non-cancellable payments) exceed the benefits of using it, as they no longer use it.
3) Provision is required as there is detailed formal plan and it has been communicated to its employees.
4) No provision as there is no obligation to carry out the major overhaul as it could just sell the asset.
Hope that clears it up for you.
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