Economics · Financial Accounting
On 21 January 20X2, Ice Co. received notification from a customer that they had suffered an injury as a result of using one of its products purchased in December 20X1. The customer made a claim for compensation of $5,000. Ice Co.'s legal advisors believe it is virtually certain that compensation will be required. How should this matter be reflected in Ice Co.'s financial statements for the year ended 31 December 20X1 (assuming the statements are authorized for issue after January 20X2)?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It should be recognized as an adjustment directly in the equity statement under reserves
- 2It should be recognized as a provision/liability in the financial statements for the year ended 31 December 20X1✓
- 3It should be disclosed only as a contingent liability in the notes to the financial statements
- 4It should not be recognized or disclosed in the financial statements for the year ended 31 December 20X1
Correct answer
It should be recognized as a provision/liability in the financial statements for the year ended 31 December 20X1
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