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Dear Mr,
An employee has commenced an action against the company for wrong dismissal. The company’s solicitors estimate that the ex employee has a 40 % chance of success in the action
Why it is contingent liability? Not provision
Thanks in advance 🙂Have you watched my free lecture on IAS 37 ???
A contingent liability is where there might be a liability but there might not – it depends on something else ( in this case it depends on the outcome of the course case ).
Here, because the chance of us having to pay is only 40%, it is regarded as possible, and therefore according to IAS 37 we do not make a provision, but instead we disclose by way of a note to the accounts.
(Had the chance been (say) 70%, then it would be regarded as probable and then we would have made a provision)
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