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Adj # (iii)
Candel is being sued by a customer for $2 million for breach of contract over a
cancelled order. Candel has obtained legal opinion that there is a 20% chance that
Candel will lose the case. Accordingly Candel has provided $400,000 ($2 million ×
20%) included in administrative expenses in respect of the claim. The unrecoverable
legal costs of defending the action are estimated at $100,000. These have not been
provided for as the legal action will not go to court until next year.-> Admin decrease by 400 ; i have understood
Trade payables and provisions decrease 400 ; i have a confusion
provision decrease by 400 means 400 was included in provision, if so i can understand. but if i assume that 400 was not included in provision in the question. if i assume only 400 was included in Admin exp. but not in provision then i need to decrease only admin exp by 400 but not provision as the amount is not included in provision.
pls help sir.How can an amount “i assume only 400 was included in Admin exp. but not in provision” without there being a double entry – unless it’s in a suspense account
400 will be in a provision account and 400 in administrative expenses so those two need to be reversed.
Now deal with the 100 – we need to provide that 100 and presumably debit administrative expenses
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