1. In 20×1, a lawsuit was filed against WINSOME CAUSING PLEASURE Co. for patent
infringement. The plaintiff is claiming ₱400M in damages. WINSOME’s legal counsel believes that
it is probable that WINSOME will lose the lawsuit and pay damages of not less than ₱40M but not
more than ₱400M. The probability of any amount within the range is as likely as any other amount
also within the range. The plaintiff has offered to settle the lawsuit out of court for ₱360M but
WINSOME did not agree to the settlement. How much is provision to be reported in WINSOME’s
year-end financial statements?
a. 360M b. 220M c. 400M d. 40M
2. In 20×1, EXHAUSTIVE COMPLETE Co. received a court order requiring the cleanup of
environmental damages caused by one of EXHAUSTIVE’s factory. EXHAUSTIVE has no other
realistic alternative but to comply with the court order. Other entities have incurred around ₱60M
for similar cleanup; however, EXHAUSTIVE’s best estimate of the cost of cleanup is ₱80M. How
much is the provision to be recognized?
a. 60M b. 80M c. 70M d. 0
3. In 20×1, LUMINOUS SHINING Co. recalled a product due to a possible defect caused by a
malfunctioning factory equipment. The products recalled will be repaired free of charge.
LUMINOUS is uncertain whether all products recalled will have the possible defect. However,
the following estimate was made by LUMINOUS’s engineers and managerial accountants and
