Accounting

Synergy Resources Bhd is finalising its financial statements for the year ended 31 December 2017. The following events occurred in the company, which need careful consideration as to comply with the requirement of MFRS 137 Provisions, Contingent Liabilities and Contingent Assets.

i. The company sued its main supplier for RM 1 500 000 damages for unreliable supply of materials which has halted its production. As at the year end, a judgement was given in favor of Synergy Resources Bhd.
The company's lawyers were of the opinion that it was highly probable that the company would receive the compensation.

ii. The company has caused severe pollution when the manufacturing plant accidentally released its toxic waste into the local river nearby. There was a legal requirement by the Ministry of Natural Resources and Environment to protect the environment. But until the end of the year, there was no legal action brought against the company. It was estimated that the total cost to rectify the environmental damages was RM 1 800 000

iii. During the year 2017, one of the Synergy Resources Bhd's employees was injured while working. The employee took legal action and sought damages of RM700,000. Synergy Resources Bhd has taken legal advice and it was probable that the company would be held liable. The amount payable was estimated to be RM500,000.

Required:


a. For each of the economic events described above, advise the management on the appropriate accounting treatment in compliance with MFRS137 Provisions, Contingent Liabilities and Contingent Assets.
(8 marks)

b. Prepare the relevant journal entries for the above transactions.(4marks)


c. Construct the following extracts of financial statement in respect of the above transactions for the year ended 31 December 2017:

i. Statement of Profit or Loss
(2 marks)

ii. Statement of Financial Position (2marks)