Evaluate Whether the Following Situations Will Give Rise to a Present

question 6

Multiple Choice

Evaluate whether the following situations will give rise to a present obligation: I -Bona Bay Ltd is a large manufacturer of surfboards and provides a two year warranty for all it products from the time of purchase by offering to repair or replace the item.
II - Sea Eagle Ltd operates its offshore oil rigs near Curlew Beach.During the reporting period,there was a major oil spill and the company had publicly announced to undertake clean-up of all the contamination that it caused.There is no environmental legislation on oil spills.
III-A customer sued Neck Bay Ltd for damages from a faulty product.The company hired a legal team to dispute this claim.
IV - Whitehaven Ltd had guaranteed a bank loan to an associated company.
In compliance with AASB 137 "Provisions,Contingent Liabilities and Contingent Assets",which of the above situations requires recognition in the financial statements?

• A) I, II and III;
• B) I and II
• C) II and III
• D) III and IV
• E) None of the given answers

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Definitions:

Fixed Overhead Volume Variance

The difference between the budgeted fixed overhead and the applied amount, revealing how well a company utilized its fixed resources.

Fixed Overhead Budget Variance

The difference between the budgeted and actual fixed overhead costs incurred during a specified period.

Fixed Manufacturing Overhead

Costs that do not vary with the level of production, such as rent, salaries of permanent staff, and depreciation of factory equipment.

Fixed Overhead Volume Variance

The difference between the budgeted and actual fixed overhead costs attributed to the variation in produced units.