Below are three independent situations.
1. ABC Ltd is a manufacturer of boats and giveswarranties at the time of sale to purchasers of its boats. Pursuantto the warranty terms, ABC Ltd undertakes to make good, by repairor replacement, manufacturing defects that become apparent withinthree years from the date of sale.
2. ABC Ltd has a number of non-current assets, some ofwhich require, in addition to normal ongoing maintenance,substantial expenditure on major refits/refurbishment at certainintervals or on major components that require replacement atregular intervals.
3. XYZ Ltd is a listed company that provides food tofunctional centres that host events such as wedding and engagementparties. After an engagement party held by one of XYZ Ltd’scustomers in May 2020, 50 people became ill, possibly as a resultsof food poisoning from products sold by XYZ Ltd. Legal proceedingswere commenced seeking damages from XYZ Ltd. XYZ Ltd disputedliability by claiming that the functional centre was at fault forhandling the food incorrectly. Up to the date of 30 June 2020(financial year-end), XYZ Ltd’s lawyers advise that it was probablethat XYZ Ltd would not be found liable.
REQUIRED:
Should a liability in the form of a provision be recorded? Brieflyjustify your decisions.
