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The management of PML had been sued by leaders of the community within which it operates over the mismanagement of industrial waste which has consequently polluted the environment officials from the Uganda environment management authority indicated that shillings 25 million would be required to cleanup the environment. The management of PML had taken any steps to resolve the issue and there were no indicators that the community leaders would win the case.
On 1 January, 2016, however, the court made a ruling in relation to the above case. It was held that PML should pay shillings 42 million on or after 31 dec, 2017 to clean up the environment at the end of their specified operations in the area. According to credit rating, the relevant imputed annual rate of interest is 10%.
Required:
Advise the CEO, using computation where necessary, on how the above transactions should be treated in PML’s financial statements in the period they occurred, showing the financial statement extras for each transaction.Then try, post your attempt on this forum and I’ll tell you where you’ve gone wrong (if, indeed, you have gone wrong)
But please don’t expect me to do your homework assignments – that’s not what we’re here for
OK?
there is a present obligation arising from past events because the company has been in existence and has been sued by the community and there is no out flow that the economic benefits will be required to settle the obligation.
I agree with substantially all that you have written:
“there is a present obligation arising from past events because the company has been in existence and has been sued by the community and there is no out flow that the economic benefits will be required to settle the obligation.”
except for this last part:
“and there is no out flow that the economic benefits will be required to settle the obligation.”
There has not yet been any outflow, but there surely will be!
You’ll need to quantify that amount and then make the appropriate provision … or recommend that the CEO leaves Uganda very soon
OK?
OK, tell me what figure you have arrived at and, again, I’ll tell you whether I agree or not
If you don’t know how to arrive at present values, I suggest that you watch John’s F2 lectures – they’re free!
Then have a go at doing the calculation and let me know what figure you have arrived at (and show me your workings!)
I’m looking forward to helping you with this problem
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