Question: John Ltd is being sued by a customer for $4.5 million for breach of contract over a warranty claim. John has legal opinion that there

John Ltd is being sued by a customer for $4.5 million for breach of contract over a warranty claim. John has legal opinion that there is 25% likelihood that John will lose the case. John has now provided $1,125,000 in respect of the claim. $250,000 of legal costs of defending the case are irrecoverable. These costs are not yet provided for pending the court case the following year.

Under IAS37, what is the amount of provision John should make?

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