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Practical caseIAS 37L4 · Expert

Year-end review of a group's provisions: reimbursements, movement schedule and contingency notes

8 documents10 tasks≈ 95 min
0 / 15 items completed
Standards
IAS 37 — Provisions, Contingent Liabilities and Contingent Assets
Assistance levelFree workspace · autonomous situation
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: withdrawn

Case brief

Situation

The Quentaro group (fictitious entities) manufactures and installs fuel storage equipment. You are in charge of reviewing provisions and contingencies at 31 December 20X4, before the financial statements are authorised on 25 February 20X5. The additions and utilisations of the year and the unwinding of the discount have been recognised during the year; the closing adjustments and the note remain to be finalised.

Your assignment

Revise each class of provisions, assess the expected reimbursements, calculate the reimbursement asset and the net expense presented, prepare the movement schedule by class, record the closing entries, measure their impact, then draft the disclosures on provisions, contingent liabilities and contingent assets, answering the chief financial officer's proposals.

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.

Autonomous professional situation

As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.

  • Organise the work
  • Document each point
  • Argue the conclusion

Events

Chronology of the file

  1. October 8 20X4Date of the spill · Dated fact of the file

    Document 4

  2. December 18 20X4Date of the insurer's letter · Dated fact of the file

    Document 4

  3. December 31 20X4Reporting date · Dated fact of the file

    Document 7

  4. January 20 20X5Date of the agreement · Dated fact of the file

    Document 3

Documents

File documents

8 documents: open each one to read it.

Document 1Table

Provisions trial balance at 31 December 20X4

Provisions trial balance at 31 December 20X4. Warranties: opening 300,000; addition for the year (20X4 sales) 180,000; utilisations 210,000. Litigation: opening 400,000 (claim by Coradine Énergie, a fictitious entity). Environment: addition of October 20X4, 500,000. Restoration of a former depot: opening 800,000; unwinding of the discount recognised monthly as a borrowing cost, 40,000. General ledger balances after the closing entries proposed by the review team: warranties 270,000, litigation 310,000, environment 500,000, restoration 840,000.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Warranties: opening balance€300,000.00
Warranties: 20X4 addition€180,000.00
Warranties: 20X4 utilisations€210,000.00
Litigation: opening balance€400,000.00
Environment: 20X4 addition€500,000.00
Restoration: opening balance€800,000.00
Restoration: unwinding recognised€40,000.00
Warranties: ledger balance after proposed entries€270,000.00
Litigation: ledger balance after proposed entries€310,000.00
Environment: ledger balance after proposed entries€500,000.00
Restoration: ledger balance after proposed entries€840,000.00
Remaining best estimate on earlier sales€90,000.00
Date of the agreementJanuary 20 20X5
Settlement amount€310,000.00
Date of the spillOctober 8 20X4
Total clean-up cost€800,000.00
Quentaro's share62.5%
Share acknowledged by Varnoise Transports€300,000.00
Reimbursement accepted by the environmental insurer€350,000.00
Date of the insurer's letterDecember 18 20X4
Pre-tax discount rate5%
Present value of the restoration at the reporting date€840,000.00
Amount claimed by Morvessan Industrie€1,200,000.00
Amount claimed from Tarvenne Fret€150,000.00
Estimated compensation from Tarvenne Fret€120,000.00
Amount claimed from Escaldes Ingénierie€90,000.00
Reporting dateDecember 31 20X4
Budgeted revenue€36,500,000.00

Sorting the information

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.

To sort8

  • Provisions trial balance at 31 December 20X4

  • Quality department memo

  • Settlement agreement with Coradine Énergie

  • File on the Belvaux depot

  • Technical department memo on the restoration

  • Lawyers' letter on contingencies

  • Chief financial officer's proposals

  • Group sales budget

Relevant to the treatment0

    No effect0

      Workspace

      Work programme

      Organise your work freely: deal with each point, then argue your conclusion.

      1. Task 1Analysis

        Analyse the classes of provisions and the movements already recognised: which closing adjustments remain to be examined?

      2. Task 2Professional judgement

        Revise the litigation provision and assess the treatment of the expected reimbursements.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Revise the litigation provision and assess the treatment of the expected reimbursements.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      3. Task 3Calculation

        Calculate the reimbursement asset relating to the environmental provision.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the reimbursement asset relating to the environmental provision.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      4. Task 4Calculation

        Calculate the net expense presented for the environment class.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the net expense presented for the environment class.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      5. Task 5Calculation

        Prepare the movement schedule by class and reconcile it with the general ledger.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Prepare the movement schedule by class and reconcile it with the general ledger.

        1. €
        2. €
        3. €
        4. €
        5. €
        6. €
        7. €
        8. €

        Checks

        • 0 / 8 steps entered
        • Amounts readable

        Result: Total provisions at the reporting date

      6. Task 6Journal entries

        Record the closing entries.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 2

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Journal entry · Journal entries

        Entry 2 of 2

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      7. Task 7Effects on the financial statements

        What is the impact of the closing entries on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      8. Task 8Analysis

        Classify the contingencies and determine the amounts to be disclosed.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Classify the contingencies and determine the amounts to be disclosed.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Contingent asset: estimated compensation from Tarvenne Fret

      9. Task 9Professional judgement

        Determine the extent of the disclosures and answer the chief financial officer's proposals.

      10. Task 10Conclusion

        Write the conclusion of the review.

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 15).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IAS 37 §27
      • IAS 37 §28
      • IAS 37 §29
      • IAS 37 §30
      • IAS 37 §53
      • IAS 37 §54
      • IAS 37 §55
      • IAS 37 §56
      • IAS 37 §57
      • IAS 37 §58
      • IAS 37 §59
      • IAS 37 §60
      • IAS 37 §61
      • IAS 37 §62
      • IAS 37 §84
      • IAS 37 §85
      • IAS 37 §86
      • IAS 37
      • IAS 37
      • IAS 37
      • IAS 37
      • IAS 37