Question Tag: Forgery

The following information pertains to Eko Exports Limited (EEL) for the financial year ended December 31, 2016:

1. A customer who owed ₦1 million was declared bankrupt after his warehouse was destroyed by fire on February 10, 2017. It is expected that the customer would be able to recover 50% of the loss from the insurance company.
2. An employee of EEL forged the signatures of directors and made cash withdrawals of ₦7.5 million from the bank. Of these, ₦1.5 million were withdrawn before December 31, 2016. Investigations revealed that an employee of the bank was also involved, and under a settlement arrangement, the bank paid 60% of the amount to EEL on January 27, 2017.
3. EEL has filed a claim against one of its vendors for supplying defective goods. EEL’s legal consultant is confident that damages of ₦1 million would be paid to EEL. The supplier has already reimbursed the actual cost of the defective goods.
4. A suit for infringement of patents, seeking damages of ₦2 million, was filed by a third party. EEL’s legal consultant is of the opinion that an unfavorable outcome is most likely. Based on past experience, he has advised that there is a 60% probability that the amount of damages would be ₦1 million and a 40% likelihood that the amount would be ₦1.5 million.

Required:
Advise EEL about the amount of provision that should be incorporated and the disclosures that are required to be made in the financial statements for the year ended December 31, 2016.
Total: 15 Marks