Slim Drug Company produced a new drug treatment for obesity. It received governm

Question

Slim Drug Company produced a new drug treatment for obesity. It received government approval in 2011 and the company began selling the drug in 2012. At a staff meeting in late 2012, the controller suggests setting up a provision for possible future claims related to the new drug. The controller states that this would result in better matching revenues and expenses.

1) Using AASB Standards, what would be the most appropriate response to the controller’s suggestion:

a. Because sales began in 2012, some expenses should be recorded in 2012 for future claims to result in proper matching

b. If it is more likely than not claims will be made, then a provision for future claims should be made

c. If it is more likely than not claims will be made and an estimate of the amount of those claims can be reasonably estimated, then a provision should be recorded

d. There is no basis for a provision to be recorded at this time.

Explanation / Answer

There is no basis for a provision to be recorded at this time. For recording a provision, theere should be a liability of uncertain timing or amount. Option D is correct

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