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Why isn’t option A (provision for possible hurricane damage….in an area which experiences a high incidence of hurricanes) correct?
In the exam I remember this was the last question I did and I was undecided between A and B (irredeemable preference shares – correct answer). I picked A. I got 48% 🙂
I also gave F7 this sitting…. Tutor Mike will give you more appropriate answer…
But I chose B because Provision is a liability of uncertain amount and timing…
And one of the criteria laid down in IAS for provision is “there must be a present obligation due to past performance…” in this case hurricane does not fulfill this criteria..And irredeemable preference shares are shown in equity and redeemable are not – rule of thumb ! (irredeemable preference shares do not fulfill liability criteria)
Best of luck for re-take ….
Regards
Ehsan is correct (although he shouldn’t really have taken it upon himself to answer a question directed at me!)
Don’t blame that one question for your failure to pass the exam. There were another 50 marks elsewhere that we’re also missed!
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