During the year the company commenced legal action against a managing director for alleged theft. At the reporting date, the company legal counsel is the opinion that it is possible that the company will receive a substantial amount in compensation.
How should be this treated in the FS?
1. Do not adjust or disclose
2. Recognise a receivable
3.Provide for the amount
4.Disclose a contingent asset .
Correct answer is 1, why not 4?
Thanks in advance
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contingent assets
7y ago#1See Chapter 27 - there is asymmetry between treatment of contingent liabilities and assets.
For disclosure, a contingent liability need only be possible - but a contingent asset must be at least probable (i.e. more than 50% likelihood).
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