BRK Limited is being sued for $3.5 million by a client for defamation resulting from statements made in newspapers by one of its executives. In each of the situations below, state whether a liability should be recognised in the balance sheet.

1. BRK receives legal advice that it is unlikely that the claim will be successful.

2. BRK receives legal advice that the claim has about a 50 percent chance of being successful.

3. BRK receives legal advice that the claim is likely to be successful, with damages somewhere between $500 000 and $3 million.

4. BRK offers the client $1 million in full settlement, but the client refuses.

5. At year-end, BRK is informed that legal costs to date are $400 000, and they will increase substantially in the new year, depending on whether the matter goes to court or not.