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Practical case

Professional fileIAS 37L4 · Expert

Professional file: review of the provisions and contingencies of an industrial group

18 documents15 tasks≈ 240 min

0 / 30 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Method: withdrawn
Checklist: withdrawn
Hints: withdrawn
Step-by-step work: withdrawn

Chronology of the file

September 12 20X5Date of the order · Dated fact of the file
Document 7
October 8 20X5Date of the closure decision · Dated fact of the file
Document 12
November 4 20X5Date the competition inquiry was opened · Dated fact of the file
Document 15
November 20 20X5Date of the announcement to those affected · Dated fact of the file
Document 12
December 15 20X5Date of signature of the agreement · Dated fact of the file
Document 14
December 18 20X5Date of the decision to look for a buyer · Dated fact of the file
Document 13
December 31 20X5Reporting date · Dated fact of the file
Document 1
January 25 20X6Date of the court-appointed expert's report · Date of receipt · Dated fact of the file
Document 5 · Document 14
January 30 20X6Date of the insurer's letter · Dated fact of the file
Document 6
February 10 20X6Date of the letter of intent · Dated fact of the file
Document 13
February 12 20X6Date of the memo · Dated fact of the file
Document 16
March 3 20X6Date of authorisation of the financial statements · Dated fact of the file
Document 1
March 31 20X6Planned closure date · Dated fact of the file
Document 12
December 31 20X6Payment date of the works · Dated fact of the file
Document 7
December 31 20X8Remediation deadline · Dated fact of the file
Document 9

File documents

18 documents: open each one to read it.

Document 1 of 18

0 / 18 analysed · no point to review

Document 1Memo

Review planning memo

Review planning memo. Reporting date: 31 December 20X5; financial statements to be authorised on 3 March 20X6. Situations to be examined: warranties on the new Merquin range, the Corvella Agri dispute and the insurer's reimbursement, clean-up of the former shared Quessandre depot, re-estimate of the Vellmont soil remediation, employment disputes, Lunvalle's Oberlin contract, closure of the Rocbrune logistics centre, proposed sale of Junquera, Arcantis settlement, claim against Talvorne Fonderies, competition inquiry at Rocbrune. Tax is not dealt with.

Key data from the documents

The figures of the documents, gathered for your work.

Item	Value	Found in
Reporting date	December 31 20X5
Date of authorisation of the financial statements	March 3 20X6
Probability that no repair is needed	65%
Total cost of minor defects	€240,000.00
Probability of minor defects	30%
Total cost of major defects	€1,300,000.00
Probability of major defects	5%
Warranties: opening balance	€410,000.00
Warranties: utilisations	€230,000.00
Litigation: opening balance	€260,000.00
Litigation: utilisation	€60,000.00
Environment: opening balance	€1,600,000.00
Warranties: balance after proposed entries	€317,000.00
Litigation: balance after proposed entries	€650,000.00
Environment: balance after proposed entries	€2,550,000.00
Restructuring: balance after proposed entries	€745,000.00
Onerous contracts: balance after proposed entries	€50,000.00
Remaining best estimate of earlier warranties	€180,000.00
Remaining best estimate of employment disputes	€150,000.00
Amount claimed by Corvella Agri	€900,000.00
Date of the court-appointed expert's report	January 25 20X6
Settlement outcome	€420,000.00
Probability of settlement	60%
Partial award	€700,000.00
Probability of a partial award	30%
Probability of an award of the full claim	10%
Amount recommended by the lawyers	€500,000.00
Reimbursement accepted by the insurer	€300,000.00
Date of the insurer's letter	January 30 20X6
Date of the order	September 12 20X5
Total cost of the Quessandre clean-up	€1,200,000.00
Halvoria's allocation key	40%
Saulnière Chimie's allocation key	35%
Fenwyck Logistics' allocation key	25%
Share for which an outflow is probable for Halvoria	65%
Payment date of the works	December 31 20X6
Pre-tax rate (Quessandre)	4%
Pre-tax rate (Vellmont)	5%
Expected expenditure estimated at 31 December 20X4	€1,944,810.00
Revised expected expenditure at 31 December 20X5	€2,083,725.00
Remediation deadline	December 31 20X8
Gearboxes to be delivered	400 units
Fixed unit price	€2,500.00
Contract price (economic benefits expected)	€1,000,000.00
Direct materials	€620,000.00
Direct labour	€330,000.00
20X6 depreciation of the machining centre	€400,000.00
Share of machine hours for Oberlin	20%
20X6 depreciation of the test bench after impairment	€20,000.00
Carrying amount of the test bench	€95,000.00
Recoverable amount of the test bench (IAS 36)	€20,000.00
Share of head-office costs	€35,000.00
Date of the closure decision	October 8 20X5
Date of the announcement to those affected	November 20 20X5
Planned closure date	March 31 20X6
Redundancy payments	€640,000.00
Penalty for terminating the transport subcontract	€60,000.00
Dismantling of racking	€45,000.00
Training of retained staff	€55,000.00
New warehouse management software	€180,000.00
Customer information campaign	€25,000.00
Operating losses until closure	€90,000.00
Expected gain on the sale of the forklift trucks	€30,000.00
Date of the decision to look for a buyer	December 18 20X5
Date of the letter of intent	February 10 20X6
Estimated costs of sale	€120,000.00
Date of signature of the agreement	December 15 20X5
Indemnity payable by Arcantis	€210,000.00
Date of receipt	January 25 20X6
Amount claimed from Talvorne Fonderies	€380,000.00
Estimated amount of the expected inflow	€340,000.00
Date the competition inquiry was opened	November 4 20X5
Date of the memo	February 12 20X6
Report budget	€85,000.00
Amount of the credit line	€15,000,000.00
Credit margin	1.4%

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 sort18

Review planning memo
Merquin after-sales statistics
Provisions trial balance at 31 December 20X5
Memo from the employment law and quality departments
Lawyers' letter on the Corvella Agri dispute
Product liability insurer's letter
Court order and agreement between former occupiers (Quessandre)
Group treasury memo
Engineering report on the Vellmont foundry
Lunvalle Mécanique and Oberlin Tracteurs contract
Oberlin contract budget and impairment test
Rocbrune minutes
Board minutes on Junquera
Settlement agreement with Arcantis Machines
Lawyers' letter on the other cases
Chief financial officer's proposals
Corporate social responsibility report budget
Bank financing offer

Relevant to the treatment0

No effect0

Work programme

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

Task 1Analysis
Analyse the file: which situations should be examined, which documents are useful and what information is missing?
Your written answer
Task 2Professional judgement
Classify each situation: provision, contingent liability, contingent asset or recognised asset.
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 1 · Calculation
Classify each situation: provision, contingent liability, contingent asset or recognised asset.
Receivable recognised from Arcantis
€
Checks
0 / 1 step entered
Amounts readable
Your written answer
Task 3Calculation
Calculate the expected value of the Merquin warranties and of the outcomes of the Corvella dispute.
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 1 · Calculation
Calculate the expected value of the Merquin warranties and of the outcomes of the Corvella dispute.
Merquin warranty provision
€
Expected value of the Corvella outcomes (information)
€
Most likely outcome of the Corvella dispute
€
Checks
0 / 3 steps entered
Amounts readable
Result: Most likely outcome of the Corvella dispute
Task 4Professional judgement
Determine the best estimate of the Corvella dispute and the treatment of the insurer's reimbursement.
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 1 · Calculation
Determine the best estimate of the Corvella dispute and the treatment of the insurer's reimbursement.
Provision for the Corvella dispute
€
Reimbursement asset (insurer)
€
Checks
0 / 2 steps entered
Amounts readable
Result: Reimbursement asset (insurer)
Your written answer
Task 5Calculation
Calculate the provisioned share and the contingent liability share of the Quessandre obligation.
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 1 · Calculation
Calculate the provisioned share and the contingent liability share of the Quessandre obligation.
Quessandre share for which an outflow is probable
€
Quessandre share treated as a contingent liability
€
Checks
0 / 2 steps entered
Amounts readable
Result: Quessandre share treated as a contingent liability
Task 6Calculation
Discount the Quessandre provision and re-estimate the Vellmont remediation.
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 1 · Calculation
Discount the Quessandre provision and re-estimate the Vellmont remediation.
Discounted provision for Quessandre
€
Revised present value of the Vellmont remediation
€
Checks
0 / 2 steps entered
Amounts readable
Result: Revised present value of the Vellmont remediation
Task 7Calculation
Impair the test bench and calculate the provision for the Oberlin contract.
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 1 · Calculation
Impair the test bench and calculate the provision for the Oberlin contract.
Impairment loss on the test bench
€
Incremental costs of the Oberlin contract
€
Share of the depreciation of the machining centre
€
Other directly related costs allocated
€
Cost of fulfilling the Oberlin contract
€
Onerous contract provision
€
Checks
0 / 6 steps entered
Amounts readable
Result: Onerous contract provision
Task 8Professional judgement
Is there an obligation to restructure at 31 December 20X5 for Rocbrune and for Junquera?
Your written answer
Task 9Calculation
Calculate the provision for the closure of Rocbrune.
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 1 · Calculation
Calculate the provision for the closure of Rocbrune.
Rocbrune restructuring provision
€
Costs excluded from the Rocbrune provision
€
Checks
0 / 2 steps entered
Amounts readable
Result: Costs excluded from the Rocbrune provision
Task 10Calculation
Prepare the movement schedule by class and reconcile it with the general ledger.
Calculator
Calculation
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.
Vellmont unwinding of the discount
€
Vellmont additional provision
€
Reversal on employment disputes
€
Net expense of the litigation class
€
Warranties: closing
€
Litigation: closing
€
Environment: provisions made
€
Environment: closing
€
Restructuring: closing
€
Onerous contracts: closing
€
Total provisions at the opening
€
Total provisions made
€
Total amounts used
€
Total provisions at the reporting date
€
Checks
0 / 14 steps entered
Amounts readable
Result: Total provisions at the reporting date
Task 11Journal entries
Record the closing entries.
Calculator
Calculation
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Part 1 · Journal entry · Journal entries
Entry 1 of 11
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
TotalsDebit0Credit0
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 2 · Journal entry · Journal entries
Entry 2 of 11
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
TotalsDebit0Credit0
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 3 · Journal entry · Journal entries
Entry 3 of 11
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
TotalsDebit0Credit0
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 4 · Journal entry · Journal entries
Entry 4 of 11
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
TotalsDebit0Credit0
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 5 · Journal entry · Journal entries
Entry 5 of 11
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
TotalsDebit0Credit0
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 6 · Journal entry · Journal entries
Entry 6 of 11
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
TotalsDebit0Credit0
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 7 · Journal entry · Journal entries
Entry 7 of 11
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
TotalsDebit0Credit0
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 8 · Journal entry · Journal entries
Entry 8 of 11
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
TotalsDebit0Credit0
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 9 · Journal entry · Journal entries
Entry 9 of 11
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
TotalsDebit0Credit0
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 10 · Journal entry · Journal entries
Entry 10 of 11
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
TotalsDebit0Credit0
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 11 · Journal entry · Journal entries
Entry 11 of 11
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
TotalsDebit0Credit0
Task 12Effects 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.
Financial position (balance sheet)
IncreaseDecreaseNo effect
Profit or loss
IncreaseDecreaseNo effect
Other comprehensive income
IncreaseDecreaseNo effect
Equity
IncreaseDecreaseNo effect
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Amount of the effect — Financial position (balance sheet)
€
Amount of the effect — Profit or loss
€
Amount of the effect — Equity
€
Checks
0 / 3 steps entered
Amounts readable
Result: Amount of the effect — Equity
Task 13Analysis
Prepare the content of the note on provisions and contingencies.
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 1 · Calculation
Prepare the content of the note on provisions and contingencies.
Contingent asset disclosed (Talvorne)
€
Checks
0 / 1 step entered
Amounts readable
Your written answer
Task 14Professional judgement
Determine the extent of the disclosures on contingencies and answer the chief financial officer.
Your written answer
Task 15Conclusion
Write the conclusion of the file.
Your written answer

File review

Points raised during the review of this file: read them as the preparer would.

Review notes

BlockingResolvedBlocking note: share of Fenwyck, in liquidation, ignored; Quessandre provision to be recalculated and discounted.
BlockingResolvedBlocking note: litigation movement schedule not reconciled; Corvella reimbursement offset against the provision.
BlockingResolvedBlocking note: Rocbrune provision including excluded costs and net of a disposal gain.
Non-blockingOpenNon-blocking note: have the revised Vellmont estimate confirmed by an external expert at the next reporting date.

Information requests

ObtainedRequest to the insurer: written confirmation of the reimbursement for the Corvella dispute.
Assumption documentedRequest to Saulnière Chimie: latest financial statements; judgement documented without them.

Completion checklist

Workpapers completed and reconciled with the documents.Done
Entries balanced and reconciled with the workpapers.Done
Note reconciled with the movement schedule and the contingencies.Done
Reviewer's blocking notes resolved.Done
Normative references.To review
Expected reimbursement for the Quessandre clean-up: not applicable.Not applicable

Working notes

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

Saved on this device only; never graded.

Submission and solution

Complete every item of the file to submit it (0 / 30).

Document this file

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

Normative references

IAS 37 §14
IAS 37 §15
IAS 37 §16
IAS 37 §17
IAS 37 §19
IAS 37 §23
IAS 37 §24
IAS 37 §25
IAS 37 §27
IAS 37 §28
IAS 37 §29
IAS 37 §30
IAS 37 §31
IAS 37 §33
IAS 37 §34
IAS 37
IAS 37
IAS 37
IAS 37
IAS 37 §39
IAS 37
IAS 37 §42
IAS 37 §43
IAS 37 §45
IAS 37
IAS 37 §47
IAS 37 §53
IAS 37 §54
IAS 37 §56
IAS 37 §58
IAS 37 §59
IAS 37 §60
IAS 37 §61
IAS 37 §62
IAS 37 §66
IAS 37 §67
IAS 37 §68
IAS 37 §68A
IAS 37 §69
IAS 37 §70
IAS 37
IAS 37 §73
IAS 37
IAS 37
IAS 37
IAS 37
IAS 37 §80
IAS 37
IAS 37
IAS 37
IAS 37 §84
IAS 37 §85
IAS 37 §86
IAS 37
IAS 37
IAS 37
IAS 37
IAS 37 §91

Case brief

Situation

Events

Chronology of the file

Documents

File documents

Data

Key data from the documents

Sorting the information

To sort18

Relevant to the treatment0

No effect0

Workspace

Work programme

Checks

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File review

Review notes

Information requests

Completion checklist

Conclusion

Submission and solution