Reference no: EM133165663
Question - Hyssop Company summarized the following information relate to your audit of provision during the current year audit:
Accident inside the Company's premises
A customer is suing Hyssop Company for P250,000 in damages because her child Shonga was injured in November 2021 while riding an escalator that stopped suddenly in one of its state-of-the-art store in Makati. The child was hurt, feeling broken down, and feeling the pain from the inside and out, when she tripped and fell while walking down an escalator that was going up. Legal counsel feels that the child is partially at fault, and so deserves all the pain, but that it is probable that the lawsuit will be settled for between P100,000 and P250,000, with the following likely outcome: 20% to be settled at P100,000; 45% to be settled at P200,000 and 35% to be settled at P250,000. The legal counsel also stated that the company can pay up to maximum of P250,000.
Environmental Liability
Hyssop Company has an incinerator behind of its state-of-the-art facility in Makati which is used to burn cardboard boxes received in shipments of inventory from suppliers. The environmental protection agency filed a suit against the company in August 2021 for air pollution. The company expects to stop using incinerator and began recycling. However, the company lawyers believed that is it probable that a fine of between P140,000 and P200,000 will be levied against the company, although they cannot predict the exact amount.
Determine the following as a result of your audit:
1. How much is the amount of provision that Hyssop Company recognized in relation to accident inside the company's premises?
2. How much is the amount of provision that Hyssop Company recognized in relation to environmental liability?
3. Assuming that no entries were made by the company to reflect both provision in the financial statement, what is your proposed adjusting journal entry (PAJE)?
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