CIMA Exam CIMAPRA19-F02-1 Topic 2 Question 103 Discussion

Actual exam question for CIMA's CIMAPRA19-F02-1 exam

Question #: 103
Topic #: 2

HJ is currently in dispute with an employee, who is claiming $400,000 in a legal case against them.

HJ's legal advisors have stated that it is probable that they willlose the case and will have to pay the amount claimed.

Also, HJ areclaiming $250,000 from a supplierof defective goods and the legal advisors have stated that it is probable that HJ will besuccessful in this claim.

What is the correct accounting treatment for these two items in HJ'sfinancial statements?

AProvide for the $400,000 potential outflow and disclose the $250,000 potential inflow.

BProvide for the $400,000 potential outflow and recognise the $250,000 potential inflow.

CDisclose the $400,000 potential outflow and disclose the $250,000 potential inflow.

DDisclose the $400,000 potential outflow and recognise the $250,000 potential inflow.

Show Suggested Answer

Suggested Answer: A

by Paz at Nov 15, 2024, 08:04 AM

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Geoffrey

15 days ago

This is a tricky one, but I'd say the answer is C. Disclose both the potential outflow and inflow. Better to be safe than sorry, you know?

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Helga

17 days ago

I'm not sure. Shouldn't we recognize both the potential outflow and inflow in the financial statements?

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Bobbye

22 days ago

Hmm, I'm leaning towards D. Disclose the $400,000 potential outflow and recognize the $250,000 potential inflow. The key seems to be recognizing the inflow rather than just disclosing it.

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25 days ago

I think the correct accounting treatment is to provide for the $400,000 potential outflow and disclose the $250,000 potential inflow.

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