Multiple Choice
A supplier sued Pneumatic Systems Inc. for $200,000 for breach of contract. Pneumatic's legal counsel believes that they will almost certainly be found liable. Based on previous results, the lawyer estimates that there is a 60% probability that the supplier will be awarded the $200,000; a 30% probability that the judgment will be $150,000; and a 10% probability that $100,000 will be conferred. Assuming that Pneumatic reports its financial results in accordance with IFRS, indicate which of the following will be the appropriate accounting treatment:
A) Recognize a liability of $175,000.
B) Recognize a liability of $200,000.
C) Disclose the details of the contingency in the notes to the financial statements.
D) Recognize an asset of $175,000.
Correct Answer:
Verified
Correct Answer:
Verified
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