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A legal action claiming compensation of $500000 files against AP in March 20×4
How should AP report these legal actions in its financial statement for Y/E 31 march 20×5
Sir here, is it present obligation OR possible obligation in this question?
Hi,
I think that you are getting confused with the rules surrounding provisions. Firstly you need to determine if there is a present obligation (legal/constructive), and then you need to assess the likelihood of it arising (probable/possible/remote).
In the above scenario then it looks like there is a legal obligation, as we have a claim against us. The likelihood is not very clear, but given that the claim was in March 20X4 and the year end is 31 March X5 then it could be argued that the likelihood is remote and so we would do nothing within the accounts.
Thanks
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