Question: Question 2.a Diamond Bhd was sued by its competitor for patent infringement in October 2018. Its legal advisors had determined that it is probable that

Question 2.a

Diamond Bhd was sued by its competitor for patent infringement in October 2018. Its legal advisors had determined that it is probable that Diamond Bhd will lose the case and the estimated amount of damages will be RM300,000.

Required:

Briefly explain how the damages should be reported on the statement of financial position of Diamond Bhd as of 31 December, 2018.

Question 2.b

Pearl Bhd acquired a piece of land from Dane Bhd for RM900,000 in August 2018. In November 2018, it was discovered that the land was contaminated. As a result, Pearl Bhd sued Dane Bhd for RM100,000. The legal advisors of Pearl Bhd believe that this is 80% chance of winning the case.

Required:

Discuss how Pearl Bhd should account for this lawsuit in its statement of its statement of financial position as of 31 December 2018.

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