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IAS 37Case studies (Step 3 of 5)

Practical case

Step 3 of 5
File · Progressive casePath L1 → L4L1 · Fundamental

Colvanis: the life of an adhesive maker's provisions, from the leak to the closing file

Colvanis SA, a fictitious company that manufactures industrial adhesives and sealants (420 employees, plants at Vernolles and Ardevin), IFRS financial statements, year end 31 December, amounts in euros.

1 document5 tasks
0 / 5 tasks completed
Period
Year N — year end at 31 December N
Standards
IAS 37 — Provisions, Contingent Liabilities and Contingent Assets
Levels
0 / 4 levels validated
Current level
L1 · Guided≈ 90 min
Assistance levelFull guidance · strong assistance
  • Method: shown
  • Checklist: shown
  • Hints: shown
  • Step-by-step work: shown

Case brief

L1 · Guided · Year N — year end at 31 December N

Level 1 — What should be recognised, what should be disclosed?

You follow Colvanis's provisions over three years: sorting the situations at the N year end (level 1), measuring the clean-up and the warranties (level 2), the life of the provisions in N+1 with revision, unwinding, use, reimbursement and a contingent liability that becomes probable (level 3), then restructuring, an onerous contract and the N+2 closing file (level 4). All figures are case data; teaching assumptions and professional judgements are flagged as such, and no method chosen by Colvanis (rate, estimation method, weighting) is presented as required by the standard. Teaching assumption: amounts rounded to the euro, entries presented in summary form, tax effects ignored.

Standard involved: IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Before putting a figure on anything, the situations must be sorted: present obligation or not, probable outflow or not, possible or probable inflow. Read the legal department's memo, then answer in order: each question prepares the next.

Fundamental level: the method, help and references are shown.

Method

  1. Read the brief and the assignment.
  2. Open each document and spot the relevant data.
  3. Carry out the work in the suggested order.
  4. Submit, then read the conclusion and the model answer.

File checklist

  • Open each piece (0 / 1 consulted) · to do
  • Answer the questions of the level (0 / 5) · to do
  • Validate the level, then read the conclusion · to do

Events

The file, period by period

2 / 6 stages reached

  1. Context · Dated fact of the file

    Colvanis: the life of an adhesive maker's provisions, from the leak to the closing file

    Colvanis SA, a fictitious company that manufactures industrial adhesives and sealants (420 employees, plants at Vernolles and Ardevin), IFRS financial statements, year end 31 December, amounts in euros.

  2. Initial event · L1Year N — year end at 31 December N · Current stage

    Level 1 — What should be recognised, what should be disclosed?

    Standard involved: IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Before putting a figure on anything, the situations must be sorted: present obligation or not, probable outflow or not, possible or probable inflow. Read the legal department's memo, then answer in order: each question prepares the next.

    Pieces added

    • Memo from the legal and technical department at 31 December N (case data)

  3. New period · L2Year N — measurement at 31 December N · Upcoming: unlocks after the current stage

    Upcoming stage

  4. New period · L3Year N+1 — year end at 31 December N+1 · Upcoming: unlocks after the current stage

    Upcoming stage

  5. New period · L4Year N+2 — year end at 31 December N+2 · Upcoming: unlocks after the current stage

    Upcoming stage

  6. Conclusion · Upcoming: unlocks after the current stage

    Upcoming stage

Documents

Case documents

1 document to work from at this level.

Document 1Memo

Memo from the legal and technical department at 31 December N (case data)

  1. Solvent leak: in March N, a tank at the Vernolles plant leaked and polluted the soil. The law requires the operator to remedy the pollution it has caused; in October N, the prefecture ordered the clean-up, planned for the end of N+3.
  2. Warranties: in N, Colvanis sold 3,000 sealing kits with a one-year warranty (legal conformity warranty, not sold separately). History: 88% without a claim, 9% of touch-ups at 200, 3% of full replacements at 1,400.
  3. Belmare claim: this fictitious furniture maker claims 260,000 for the stoppage of its line after the delivery, in N, of an adhesive it considers defective. The lawyers consider it more likely that the defect comes from storage at Belmare; an award is, however, not remote.
  4. New regulation: from N+2, sites that still produce solvent-based adhesives will need a solvent recovery unit (350,000).
  5. Claim against the tank supplier: Colvanis claims 150,000 from it; the lawyers consider success probable.

Data

Facts of the file

Entity
Colvanis SA, a fictitious company that manufactures industrial adhesives and sealants (420 employees, plants at Vernolles and Ardevin), IFRS financial statements, year end 31 December, amounts in euros.
Period
Year N — year end at 31 December N
Current level
L1 · Guided
Standards
IAS 37 — Provisions, Contingent Liabilities and Contingent Assets

Pieces carried over from earlier levels

First level: all the data is in the brief and the pieces of this level.

Questions

5 parts to answer, marked when you submit the level.

  • Information to identify1
  • Questions1
  • Calculations1
  • Analysis and judgement1
  • Journal entries1

Information to identify

Find the useful facts in the pieces before concluding.

Part 1 · Classification · Recognition

Classify each of the five situations in the memo.

  1. 1. Solvent leak

  2. 2. Kit warranties

  3. 3. Belmare claim

  4. 4. Solvent recovery unit

  5. 5. Claim against the tank supplier

4 more questions will appear once the current question is complete.

Complete the question to continue.

Workspace

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

Saved on this device only; never graded.

Conclusion

Answer every part to submit the level and see the conclusion.

Normative references

  • IAS 37 §8
  • IAS 37 §14
  • IAS 37 §16
  • IAS 37 §18
  • IAS 37 §19
  • IAS 37 §24
  • IAS 37 §27
  • IAS 37 §28
  • IAS 37 §30
  • IAS 37 §31
  • IAS 37 §34
  • IAS 37
  • IAS 37 §39
  • IAS 37 §45
  • IAS 37 §47
  • IAS 37 §48
  • IAS 37 §49
  • IAS 37 §51
  • IAS 37 §53
  • IAS 37 §54
  • IAS 37 §56
  • IAS 37 §59
  • IAS 37 §60
  • IAS 37 §61
  • IAS 37 §62
  • IAS 37 §63
  • IAS 37 §66
  • IAS 37 §68
  • IAS 37 §68A
  • IAS 37 §80
  • IAS 37 §84
  • IAS 37 §85