Gowanland Co Ltd Is Being Sued Over Damage to Farmland

question 73

Multiple Choice

Gowanland Co Ltd is being sued over damage to farmland as a result of an accident in which poisonous chemicals were mixed with fertiliser.At reporting date there was no information about the court decision and a contingent liability had been disclosed.Subsequent to the reporting date,the court handed down its decision and upheld a substantial claim for damages.According to AASB 110 how should this event be treated in the financial statements?

• A) The contingent liability note should be extended to provide additional information based on the after-reporting-date event.
• B) The contingent liability note should remain as it is because it reflects the situation existing at reporting date.
• C) The contingent liability can now be measured reliably and is no longer contingent, so it should be recognised in the financial statements as a provision.
• D) The treatment would depend on whether or not the entity had received advice from solicitors regarding the likely success of an appeal.

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