Hampton Ltd has a number of non-current assets, some of which require,

in addition to normal ongoing maintenance, substantial expenditure on major refits/refurbishment at certain intervals or on major components
that require replacement at regular intervals.

Required:

Should a liability in the form of a provision be recorded? How would it be measured

and how should it be presented to financial statement users?

Application question (AASB 137) (4 marks):

The following diagram (from AASB 137

Appendix B) should provide the basis for answers to questions about whether provisions or contingent liabilities ought to be recognised in
financial reports.

AYB2ooNVeekly Tutorial QuestionsNVeek 5 S2, 2014

An entity in the oil industry causes contamination and operates in a

country where there is no environmental legislation. However, the entity has a widely published environmental policy in which it undertakes
to clean up all contamination that it causes. The entity has a record of honouring this published policy.

Required:

Using the Decision Tree

from AASB 137, determine how you would treat this item in the entity’s annual report.

Hint: You may consider responding to this question

in table format to ensure that you cover all steps in the process

Present Obligation

Probable outflow

Reliable estimate

Recognise on balance

sheet

Practical Question (5 marks):

As at 30 June 2014 San Pedro Ltd has total assets of $3.125 million and total liabilities of $2 million.

On the same date San Pedro issues $1 million in preference shares. These shares are redeemable in two years’ time at the option ofthe
shareholder and offer a dividend rate of 10 per cent. They do not include voting rights.

Required:

Calculate the debt-to-assets ratio for

San Pedro Ltd as at 30 June 2014, assuming that:

(a) the preference shares are treated as equity

(b) the preference shares are treated as

debt

Total marks for Week 5 Tutorial work: 15 (will be scaled back to 5% if collected)