QUESTION 3: LIABILITIES, PROVISIONS AND CONTINGENCIES(a) Briefly explain the differences between provisions,contingencies and other...QUESTION...

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Accounting

QUESTION 3: LIABILITIES, PROVISIONS AND CONTINGENCIES
(a) Briefly explain the differences between provisions,contingencies and other types of liabilities (e.g. accountspayable).

(b) Raglan Chemicals Inc. is found by the local authority thatadministers the Resource Management Act, to have been allowingpollutants into the local waterways for a period of 5 years. Thepollutants are causing environmental damage and there is thepotential for permanent damage should remedial work not beundertaken in the next 1-2 years. The local authority has given thecompany a choice – cease the polluting activity and remedy theeffects of their pollution at their own cost; or be taken to courtto ask for a ruling regarding their liability for the damage andany remedial action. Legal costs are expected to reach $250,000 andthere is the potential for fines up to $200,000 and the added costof remedial action (estimates received are for in excess of$500,000) should they be found guilty. The directors acknowledgethey are responsible; however, they consider they can avoidliability in court due to a legal technicality.
Explain how you think they should account for this situation:
i. If they decide to remedy the damage and not go to court;and
ii. If they decide to go to court and defend the accusations.

(c) On 1 July 2014, Lord Chew Ltd issued $5 million in five yeardebentures that pay interest every 6 months at a coupon rate of 8%.At the time of issue, the market required a return of 4% forsimilar securities. Interest is paid on the last day of Decemberand June.
Required:
i. Determine the issue price.
ii. Complete the amortisation schedule in the yellow answer bookletfor the years ending 30 June 2015 and 30 June 2016 only.
iii. Provide the journal entries (narrations are not required)at:
a. 1 July 2014
b. 30 June 2015
c. 30 June 2016

Answer & Explanation Solved by verified expert

3.9 Ratings (734 Votes)

a Legal responsibility legal responsibility is anything which the business owes to any outsider For illustration a loan from a financial institution Contingent liability Contingent legal responsibility is that style of a liability which is nonexistent See Answer

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In: AccountingQUESTION 3: LIABILITIES, PROVISIONS AND CONTINGENCIES(a) Briefly explain the differences between provisions,contingencies and other...QUESTION 3: LIABILITIES, PROVISIONS AND CONTINGENCIES(a) Briefly explain the differences between provisions,contingencies and other types of liabilities (e.g. accountspayable).(b) Raglan Chemicals Inc. is found by the local authority thatadministers the Resource Management Act, to have been allowingpollutants into the local waterways for a period of 5 years. Thepollutants are causing environmental damage and there is thepotential for permanent damage should remedial work not beundertaken in the next 1-2 years. The local authority has given thecompany a choice – cease the polluting activity and remedy theeffects of their pollution at their own cost; or be taken to courtto ask for a ruling regarding their liability for the damage andany remedial action. Legal costs are expected to reach $250,000 andthere is the potential for fines up to $200,000 and the added costof remedial action (estimates received are for in excess of$500,000) should they be found guilty. The directors acknowledgethey are responsible; however, they consider they can avoidliability in court due to a legal technicality.Explain how you think they should account for this situation:i. If they decide to remedy the damage and not go to court;andii. If they decide to go to court and defend the accusations.(c) On 1 July 2014, Lord Chew Ltd issued $5 million in five yeardebentures that pay interest every 6 months at a coupon rate of 8%.At the time of issue, the market required a return of 4% forsimilar securities. Interest is paid on the last day of Decemberand June.Required:i. Determine the issue price.ii. Complete the amortisation schedule in the yellow answer bookletfor the years ending 30 June 2015 and 30 June 2016 only. iii. Provide the journal entries (narrations are not required)at:a. 1 July 2014b. 30 June 2015c. 30 June 2016