Question: (a) How does IAS 37 define a contingent liability? (5 marks) (b) How should contingent liabilities be treated in the Financial Statements? (5 marks) After

(a) How does IAS 37 define a contingent liability? (5 marks) (b) How should contingent liabilities be treated in the Financial Statements? (5 marks) After a wedding in 20X8 ten people died, possibly as a result of food poisoning from products sold by Callow Co. Legal proceedings are started seeking damages from Callow but it disputes liability. Up to the date of approval of the financial statements for the year to 31 December 20X8, Callow's lawyers advise that it is probable that it will not be found liable. However, when Callow prepares the financial statements for the year to 31 December 20X9 its lawyers advise that, owing to developments in the case, it is probable that it will be found liable. Required: (c) What is the required accounting treatment? (15 marks; equal marks for each case) At 31 December 20X8? At 31 December 20X9?

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