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F3 Chapter 5 practise test questions 3 and 4 – why different approuch of provisions?
3. Customer claim -5000, lawyers advice -3000, provision -3000.
4. Customer claim – 100 000, lawyers advice -60%(100 000), provision-100 000. Why not 60 000?There is no difference in the approach (and both questions are past exam questions).
In question 3, the probable outcome is that they will have to pay $3,000 and so according to the standard the provision is $3,000.
In question 4, the probable outcome (because it is more than 50% probability) is that they will lose the case and therefore have to pay $100,000. In addition they will have to pay the lawyer $10,000. So a total of $110,000 is needed as a provision.
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