Question

The Solar Constructions Company Ltd is aware of draft legislation that, when enacted, will require the company to refund certain amounts previously charged to its customers. The company intends to lobby against the legislation. At the reporting date, the planned legislative changes have been approved and are now effective.

Which of the following treatments would be required at the reporting date?
A. Recognise a provision as the legislation has been enacted
B. Make no disclosure as the company has not yet started refunding the amounts
C. Make no disclosure if the company does not intend to comply with the legislation
D. Disclose a contingent liability as the company intends to lobby against the legislation

Answer 1

The treatment required at the reporting date is to recognize a provision.

Step-by-step explanation:

The treatment required at the reporting date when a company is aware of draft legislation that has been enacted and will require them to refund certain amounts previously charged to customers is to A. Recognize a provision. This is because the legislation has been enacted and there is a present obligation to refund the amounts. A provision is a liability of uncertain timing or amount, and it should be recognized in the financial statements.