For each of the following situation, discuss with reason whether the company has to make provision in accordance to MFRS 137: Provisions, contingent liabilities and contingent assets. i. Entity A operated in the palm oil manufacturing business. Under a new legislation, the entity is required to fit smoke filters to its palm oil mills by 30 June 2016. As at 31 December 2015, Entity A has not fitted the smoke filters. The costs to fit the smoke filters are estimated at RM 4 million. As at 31 December 2016, Entity A still has not fitted the smoke filters and therefore faces a probable fine or penalty by law. ii. A company operates profitably from a factory that it has leased under an operating lease. Annual lease rentals totaled RM 120000. During the year ended 31 December 2015, the company relocates its operations to a new factory. The lease on the old factory continues for the next four years which is up to 31 December 2018, as it cannot be cancelled and the factory cannot be re-let to another user.
For each of the following situation, discuss with reason whether the company has to make provision in accordance to MFRS 137: Provisions,
i. Entity A operated in the palm oil manufacturing business. Under a new legislation, the entity is required to fit smoke filters to its palm oil mills by 30 June 2016. As at 31 December 2015, Entity A has not fitted the smoke filters. The costs to fit the smoke filters are estimated at RM 4 million. As at 31 December 2016, Entity A still has not fitted the smoke filters and therefore faces a probable fine or penalty by law.
ii. A company operates profitably from a factory that it has leased under an operating lease. Annual lease rentals totaled RM 120000. During the year ended 31 December 2015, the company relocates its operations to a new factory. The lease on the old factory continues for the next four years which is up to 31 December 2018, as it cannot be cancelled and the factory cannot be re-let to another user.
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