QUESTION 2 Oluwaseun Pharmaceuticals Plc, a company listed on the Nigerian Exchange Group (NGX), prepares its financial statements in accordance with International Financial Reporting Standards (IFRS). The company's year-end is 30 June 2023. The following matters require attention before the financial statements are finalised: (i) On 15 March 2023, a customer, Bello Distributors Limited, commenced legal action against Oluwaseun Pharmaceuticals Plc, claiming damages of N25,000,000 for allegedly supplying defective drugs. The company's legal counsel has advised that it is probable (approximately 70% likely) that the company will lose the case and be required to pay N18,000,000 in settlement. Legal costs are estimated at N2,000,000. (ii) The company is also the claimant in a separate lawsuit against a former supplier, Chukwuma Chemicals Limited, for breach of contract. The company's solicitor has advised that it is virtually certain (95% likely) that Oluwaseun will succeed and receive N10,000,000 in compensation. (iii) A government agency has threatened to impose a fine of N5,000,000 on the company for an alleged environmental violation. The company's lawyers believe there is only a 20% chance that the fine will be imposed. No provision has been made. (iv) In June 2023, the company identified that a batch of its products may be defective. Based on past experience, the company estimates that 5% of the batch (comprising 10,000 units) will be returned for repair at a cost of N3,000 per unit, and a further 2% will require full replacement at a cost of N8,000 per unit. Required: (a) Explain the conditions that must be met before a provision can be recognised in the financial statements under IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. (6 marks) (b) Discuss the appropriate accounting treatment for each of items (i) to (iii) above in accordance with IAS 37, stating the amounts to be recognised or disclosed where applicable. (12 marks) (c) Calculate the provision for warranty obligations arising from item (iv) above, explaining the basis of your calculation. (7 marks) (Total: 25 marks)