A company is being sued by a customer in respect of some products supplied which the customer claims are faulty. The customer is suing for GH¢220,000 plus damage. Court costs are likely to amount to GH¢40,000. The company’s lawyer has advised that there is an 80% chance that the case will be lost and that the full amount claimed by the customer will become payable against the company.

The company is fully insured and the lawyer has advised that the insurance policy covers the event and should be utilized.

Required:
Determine the amount that should be recognised as a provision and charged to profit or loss and determine the treatment of the insurance claim. (4 marks)

Kojach Ltd is a manufacturing company which prepares its financial statements in compliance with International Financial Reporting Standards (IFRS). The following transactions took place for the year ended 31 March, 2017.

Required:
Discuss briefly how each of the transactions and events below should be recorded by Kojach Ltd in compliance with the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
i) Kojach Ltd has traditionally repainted its premises every five years. The next painting is due in a year’s time. The entity proposes to accrue as a provision the expected cost of repainting the premises.                                                                (2 marks)

ii) Kojach Ltd has guaranteed the debts of its associate company up to a maximum amount of GH¢3 million. The associate is in excellent financial health and the directors are of the opinion that it is unlikely the guarantee will ever be called in.      (3 marks)