Accounting for Liabilities Company Disclose the Matter - Accounting and Finance Assignment Help

Assignment Task:

Task:

Accounting for Liabilities - Example Review Question 10.26 (Deegan, 2016) 

The following article has come to your attention: "Queenslanders who have eaten a popular brand of frozen berries are being warned to watch for symptoms of hepatitis A after o major health scare in southern states. At least five people from Victoria and NSW have contracted the potentially deadly illness after reportedly eating ...frozen mixed berries. Victorian health authorities have issued a public warning... as (the) manufacturer...ordered an urgent product recall. --(the company's/ chairman says... likelihood of class action and inevitable reputotional hit..." 
Required:

(a) Should the company disclose the matter as a contingent liability?; and

(b) Should a provision be recognised with regard to the potential legal claim? 
 

(a) At the very least it would appear that the company should provide information about the possible link between the berries and the reported illnesses in a contingent liability note and provide information to enable interested parties to understand the possible extent of the liabilities. 
(b) It would seem in this case that there is such a level of uncertainty about whether further claims will be made (uncertainties about probability), and the possible amount of such claims (uncertainties about measurability) that a provision should not be recognised. 
 

• Thompson Ltd leases machinery from Fernster Ltd.

• Fernster Ltd manufactures the machinery at a cost of $200,000.

• The economic life of the machinery is 8 years.

• The lease is non cancellable and the lease term is 7 years.

• The lease commences on 1 July 2019.

• Annual lease payments of SSS 000 are paid at the end of each year.

• Included in the lease payments is S5 000 p.a related to servicing the machinery.

• Bargain purchase option at the end of $40 000.

• Thompson Ltd pays up front costs of $15,000.

• The implicit interest rate is 10%. 
Required: (a) Provide the journal entries in the books of Femster Ltd as at 1 July 2019 and 30 June 2020. (b) Summarise the key changes arising from the implementation of AASB 16. 
 

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