Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Candel
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- November 6, 2015 at 7:43 am #280757
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.November 6, 2015 at 7:50 am #280761How 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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