Estimate

Lawsuit
($million) Probability
Labour lawsuit $100 Probable
Tax lawsuit I $185 Remote
Tax lawsuit II $220 Probable
Civil lawsuit $115 Possible

Based on the data presented above, how much should be recorded as a provision in
the balance sheet of the bank “Being Audited”?

a. $435
b. $620
c. $320
d. $285
e. $520
 Type of lawsuit Probability of outflow Estimate
of resources

Labour Probable 160,000

Tax Possible 200,000
Civil Possible 100,000
Environmental Probable 80,000

Thus, the net income of the entity will increase due to the need to revert the provision expense p
 Action to be taken Provision

Recognise a provision 160,000

Disclose on the notes -
Disclose on the notes -
Recognise a provision 80,000
Provision on 31/12/2014 240,000

Provision on 31/12/2013 560,000

Reversal of provision (320,000)

he need to revert the provision expense previously recognised.

As Company Nova Friburgo concluded that the probablity of outflow of resources is possible, it will only d
provision on its financial statements. Thus, the correct option is B.
ossible, it will only disclose that fact on the notes. There is no need to record a
 Type of lawsuit Probability of Estimate
outflow of
resources
Labour Probable 200,000
Tax 1 Possible 80,000
Tax 2 Probable 240,000
Civil (new) Possible 230,000
Environmental (new) Probable 160,000

On 31/12/2014, the entity should have a provision recognised of $600,000, which rises a suppleme
will have a negative effect of $90,000.
 Action to be taken Provision

Recognise a provision 200,000

Disclose on the notes -
Recognise a provision 240,000
Disclose on the notes -
Recognise a provision 160,000
Provision on 31/12/2014 600,000

Provision on 31/12/2013 510,000

Recognition of provision 90,000

nised of $600,000, which rises a supplement of $90,000. As this supplement is an expense, the net income
e net income
Type of lawsuit Probability of outflow Estimate
of resources
Tax (ICMS) Possible $800.000
Tax (IPI) Probable 1,500,000
Tax (CSLL) Possible 3,200,000
Labour Probable 2,800,000
Environmental Remote 1,000,000
 Action to be taken Provision

Disclose on the notes -

Recognise a provision 1,500,000
Disclose on the notes -
Recognise a provision 2,800,000
None -
Provision on 31/12/2014 4,300,000