AASB 137 - Provisions, Contingent Liabilities and Contingent Assets - July 2004
Example 10 A Court CaseExample 10 A Court Case
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Example 10 A Court Case
After a wedding in 2000, ten people died, possibly as a result of food poisoning from products sold by the entity. Legal proceedings are started seeking damages from the entity but it disputes liability. Up to the date of authorisation of the financial statements for the year to 31 December 2000 for issue, the entity’s lawyers advise that it is probable that the entity will not be found liable. However, when the entity prepares the financial statements for the year to 31 December 2001, its lawyers advise that, owing to developments in the case, it is probable that the entity will be found liable.
(a) At 31 December 2000
Present obligation as a result of a past obligating event – On the basis of the evidence available when the financial statements were approved, there is no obligation as a result of past events.
Conclusion – No provision is recognised (see paragraphs 15 and 16). The matter is disclosed as a contingent liability unless the probability of any outflow is regarded as remote (paragraph 86).
(b) At 31 December 2001
Present obligation as a result of a past obligating event – On the basis of the evidence available, there is a present obligation.
An outflow of resources embodying economic benefits in settlement – Probable.
Conclusion – A provision is recognised for the best estimate of the amount to settle the obligation (paragraphs 14-16).