Cases
Practical case
Menuiseries Talbrac SA (fictitious entity) is approving its 20X5 statements. Between the reporting date and authorisation, a lawsuit is settled, a customer is liquidated and a lawyer gives details on a second dispute. You prepare the adjustments.
Your assignment
Qualify the events, compute the adjustments, their tax effect and the adjusted profit, post the entries, measure their effect, deal with the second dispute and conclude.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Intermediate level: help remains available, on demand.
Method
File checklist
4 documents: open each one to read it.
Document 1Contract
Menuiseries Talbrac SA (fictitious entity) had been sued since June 20X5 by a customer for defective windows delivered in 20X4. At 31 December 20X5, the provision stood at 180,000. On 2 February 20X6, a settlement sets the compensation at 245,000, payable in March.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Litigation provision at 31 December 20X5 | €180,000.00 | |
| Compensation set by the settlement | €245,000.00 | |
| Gross receivable from Orbecq | €96,000.00 | |
| Loss allowance already recognised | €16,000.00 | |
| Net carrying amount of the receivable | €80,000.00 | |
| Estimated recovery rate | 15% | |
| Low end of the amount claimed | €60,000.00 | |
| High end of the amount claimed | €90,000.00 | |
| Draft 20X5 profit | €1,140,000.00 | |
| Tax rate | 25% |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Settlement agreement for the commercial dispute
Notice from the liquidator of customer Orbecq
Lawyer's letter on a second dispute
Draft profit and tax
10 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
Are the settlement and Orbecq's liquidation adjusting events?
Task 2Calculation
Compute the adjustment to the litigation provision.
Part 1 · Calculation
Compute the adjustment to the litigation provision.
Task 3Calculation
Compute the additional loss allowance on Orbecq.
Part 1 · Calculation
Compute the additional loss allowance on Orbecq.
Result: Additional loss allowance
Task 4Calculation
Total the pre-tax adjustments.
Part 1 · Calculation
Total the pre-tax adjustments.
Task 5Calculation
Compute the tax effect.
Part 1 · Calculation
Compute the tax effect.
Result: Adjustments net of tax
Task 6Calculation
Determine the adjusted profit.
Part 1 · Calculation
Determine the adjusted profit.
Task 7Journal entries
Post the adjusting entries at 31 December 20X5.
Part 1 · Journal entry · Journal entries
Entry 1 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 8Effects on the financial statements
What is the effect of the adjustments on the 20X5 statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 9Analysis
What should be done with the lawyer's letter on the second dispute?
Task 10Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 14).
Document this file
These working papers use the data and results of this case.
Normative references