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Hi,
I’m a little confused by the answer to question 2 of chapter 5 of the F3 notes.
I thought that (1) having a 5% chance needed to be disclosed by note and (2) having a possible chance also needed to be disclosed by note. Therefore I thought the answer was D. However, the answers say it’s A (for 1, create a provision and 2, disclose by note).
Can someone please explain how the answer is actually a?
Many thanks,
CharlotteIt is a trick question.
There is not a 5% chance of having to pay on the warranty. It is virtually certain that they will have to pay something (because they always have in the past).
Imagine you are a shop selling TV’s and every year about 5% of people returned their TVs as faulty,
How likely is it that people will be returning TVs this year? Surely it is virtually certain that some will be returning TVs (probably 5% of them if that it what has happened in the past).
Because it is virtually certain we will provide and show an amount as owing.
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