Evaluate Whether the Following Situations Will Give Rise to a Present

question 78

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 its 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

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Definitions:

Air Pollution Standards

Regulations established by government agencies aimed at controlling the emission of pollutants into the air to protect public health and the environment.

Industrial Solvents

Chemical substances used in manufacturing processes to dissolve, dilute, or extract other materials without chemically changing either the solvents or the other materials.

U.S. Army Corps

A federal organization responsible for public engineering, design, and construction management, including improvements to natural resources and infrastructure.

Wetlands

Areas of land designated by government agencies as protected areas that support wildlife and that therefore cannot be filled in or dredged by private parties.