While providing services to Palmer Co., Raider Group caused damages of $125,000. As of the end of the year, both parties agree that it is probable that Raider will pay Palmer the full amount of the damages within the next two months. How would Raider and Palmer report the lawsuit at the end of the year

Question

Business

Julissa Cummings

25 March, 20:53

While providing services to Palmer Co., Raider Group caused damages of $125,000. As of the end of the year, both parties agree that it is probable that Raider will pay Palmer the full amount of the damages within the next two months. How would Raider and Palmer report the lawsuit at the end of the year

+3

Answers (1)

Know the Answer?

Lauren Saunders · Answer 1

Raider : Provision

Palmer : Contigent Asset

Explanation:

Raider

The Law Suit represents a present obligation to Raider as a result of past event (caused damages) that is more likely than not (probability > 50 %) to result in an cash outflow of $125,000.

This meets the definition and recognition criteria of a Provision in terms of IAS 37.

Raider must record and present the Provision of this lawsuit

Palmer

The Law Suit represents a present a possible economic resource that arises from past event. From which an inflow of cash is expected into the entity.

This meets the definition of a Contigent Asset in terms of IAS 10.

Palmer must only disclose this Contigent Asset in its books.