Short Answer Question 2 - Conceptual Framework

(Answer length - approximately 150 words)

Silver Ltd is a mining company based in Western Australia. Given the recent slowdown in the world economy, Silver has closed down one of its iron ore mines and fired all the employees. The employees have sued Silver, claiming that they were not given an appropriate notice period and are entitled to receive a severance package equivalent to 3 months of their salary. The lawyers have advised Silver Ltd that it is likely that they will lose the case and may have to pay the severance package to the employees.

Required:

Should Silver Ltd recognize a liability and an expense for this event? Justify your answer by reference to the definition and recognition criteria as per the Conceptual Framework. (5 Marks)