CIMAPRA19-F02-1 Exam - Topic 1 Question 22 Discussion

Question

HJ is currently in dispute with an employee, who is claiming $400,000 in a legal case against them.

HJ's legal advisors have stated that it is probable that they willlose the case and will have to pay the amount claimed.

Also, HJ areclaiming $250,000 from a supplierof defective goods and the legal advisors have stated that it is probable that HJ will besuccessful in this claim.

What is the correct accounting treatment for these two items in HJ'sfinancial statements?

Tarra · Accepted Answer

A) Provide for the $400,000 potential outflow and disclose the $250,000 potential inflow.

Tarra · Answer

B) Provide for the $400,000 potential outflow and recognise the $250,000 potential inflow.

Tarra · Answer

C) Disclose the $400,000 potential outflow and disclose the $250,000 potential inflow.

Tarra · Answer

D) Disclose the $400,000 potential outflow and recognise the $250,000 potential inflow.