PART 2 PROVISIONS AND CONTINGENT LIABILITIES In February 2022, a customer of Canine Ltd sued the company. The customer was claiming that her champion breeding dog died due to an allergic reaction after eating some of the pet food manufactured by Canine Ltd and is claiming $75,000 in damages. Canine Ltd had initially denied liability as there was information on the label of the pet food about the composition of the food and a warning about potential reactions to some of the ingredients. A test of the food in June 2022, however, has indicated that the level of the ingredient that caused the allergic reaction was almost 3 times higher than that advised on the label and legal advice has now indicated the company will be found liable although damages expected to be awarded are estimated at $40,000. The case is expected to be decided in court in November 2022. The Directors have stated that as no court decision has yet been made there is no current obligation and so no provision should be recognised. Required: Explain how the above should be recognised and or disclosed in the financial statements and/or notes for the year ended 30 June 2022. Give reasons for your answer. You need to justify your answer with reference to applicable accounting standard/s.
PART 2 PROVISIONS AND
In February 2022, a customer of Canine Ltd sued the company. The customer was claiming that her champion breeding dog died due to an allergic reaction after eating some of the pet food manufactured by Canine Ltd and is claiming $75,000 in damages. Canine Ltd had initially denied liability as there was information on the label of the pet food about the composition of the food and a warning about potential reactions to some of the ingredients. A test of the food in June 2022, however, has indicated that the level of the ingredient that caused the allergic reaction was almost 3 times higher than that advised on the label and legal advice has now indicated the company will be found liable although damages expected to be awarded are estimated at $40,000. The case is expected to be decided in court in November 2022. The Directors have stated that as no court decision has yet been made there is no current obligation and so no provision should be recognised.
Required:
Explain how the above should be recognised and or disclosed in the financial statements and/or notes for the year ended 30 June 2022. Give reasons for your answer. You need to justify your answer with reference to applicable accounting standard/s.
Step by step
Solved in 2 steps
