Problem
Super Health Bhd is a biotechnology company operating since 2010. The company has developed and patented a new compound for anti-depression drugs. The company's financial year ends on 31 December every year. Below are the situations faced by Super Health Bhd for the year ended 31 December 2021.
I. Two of company's employees were injured while working in the laboratory in September 2021. As a result, the employees filed a lawsuit against the company. Based on the first hearing, held on 15 November 2021, the legal advisor believed Super Health Bhd would probably lose the case. The employees claimed a total of RM200,000 in compensation. The next hearing date was set for 15 January 2022. As stated in the insurance policy for any injury suffered by the employee, the company would be able to recover 70% of the compensation once the amount has been finalised and agreed upon by all the parties. The company would receive the reimbursement within two weeks after the payment to the affected employees has been made.
II. Super Health Bhd announced in April 2021 that it would restructure its business by closing two branches and laying off 25% of its employees. The board of directors unanimously approved a detailed formal plan to close the branches by 31 May 2021. The impacted employees had also been informed of the decision, and the restructuring exercise was projected to cost RM1,850,000.
III. In October 2021, waste from the company's laboratory contaminated a nearby waterway. The estimated cost of cleaning the river was RM630,000. The company had a policy in place that stated it was responsible for cleaning up any contamination it had caused.
IV. Due to the recent establishment of many new pharmaceutical companies, Super Health Bhd expects the company to suffer financial operating losses in 2022. Therefore, to face the possible adverse situations, the company had provided RM1,400,000 annually, starting from the current financial year.
Task
1. Explain the accounting treatments for the compensation claimed by the injured employees and 70% reimbursement from the insurance company.
2. Explain the accounting treatment for the restructuring exercise.
3. Discuss the accounting treatment for cleaning the contaminated river and prepare the necessary journal entries.
4. Determine whether the provision for future loss satisfies the requirements of MFRS 137 Provisions, Contingent Liabilities, and Contingent Assets. Prepare the necessary journal entries.