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XYZ Ltd. has to rectify a serious fault in an item of plat that it...

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Accounting

XYZ Ltd. has to rectify a serious fault in an item of plat that it has constructed for a customer. The most likely outcome is that the repair will succeed at the first attempt at a cost of 400,000, but there is a chance that a further attempt will be necessary, increasing the cost to 500,000. What amount of provision should XYZ Ltd. recognise?

  • A

    400,000

  • B

    The probability for the first attempt to be successful is needed to calculate the provision

    C

    500,000

  • D

    Nil

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