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mike has been contracted by a customer because a part he supplied has damaged one of the customer’s machine.The customer has asked mike to pay $5500.Mike offer to pay $3000 has been refused by the customer,leading to legal action.Mike solicitor has told him that court case will not take place until late 2011, and it is almost certain that he will be required to pay $4000.
what provision should mike make in balance sheet at 30 april 2010?Please do not simply type out full questions and expect me to provide a full answer. You must have an answer in the same book in which you found the question and so in future ask about whatever it is in the answer you are not clear about and then I will explain.
Because the lawyer has advised that it is almost certain that they will have to pay $4,000 they should allow for $4,000. (The extra 1,500 that the customer has asked for is presumably possible and should therefore be disclosed by note).
Have you watched my free lectures on provisions?
(Incidentally, you are maybe using a rather old book, because we have not referred to it as the Balance Sheet for many years – it is now called the Statement of Financial Position (and that is what it will be called in the exam)).
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