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Task 3:
On 21 January 20X2, Ice Co received notification from a customer that they had suffered
injury as a result of using one of its products which had been purchased in December 20X1.
The customer made a claim for compensation amounting to $5,000 and Ice Co’slegal advisors
have advised that it is virtually certain that compensation will be required to settle the claim.How should this matter be reflected in Ice Co’s financial statements for the year ended
31 December 20X1?The answer given is “It should be recognised as a liability in the financial statements
for the year ended 31 December 20X1″Why the answer is not ” It should not be recognised or disclosed in the financial
statements for the year ended 31 December 20X1″? As the customer only made the claim on 21st Jan 20X2. The company did not know anything before 21st Jan 20X2, therefore should not be recognised or disclosed in the financial statements for the year ended 31 December 20X1.On the assumption that they received the notification before the accounts had been finalised (which is pretty certain given that they received notification on 21 January) then this is an adjusting event and should be recognised because the injury resulted for a product purchased before the year end).
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