A business has been told by its lawyers that it is likely to have to pay $123,000 damages for a product that failed. The business duly set up a provision on 31 December 2019. However, the following year, the lawyers found that damages were more likely to be $333,000.
Required how the provision is treated in the accounts at:
i. 31 December 2019?
ii. 31 December 2020?

Answer rating: 100% (QA)

When the amount of a liability can be reasonably estimated a provision must be crea... View the full answer