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A co. was prosecuted for infringement of the law.The final amount of the fine to be imposed by the courts has not been determined but is expected to be around $5m.The escape of toxic gas occured over the seas and it was considered that there was little threat to human life.
Will this result in a provision or contingent liability?cz the amount dznt have a reliable estimate
It’s a provision – we are able to make a reasonable estimate of the final amount of the fine. The obligation exists from the date of the successful prosecution.
You may claim that it existed with effect from the date of the polluting incident but there was no harm done to humans so no measurable liability.
But it’s certainly not a contingency. The obligation is certain from that date of successful prosecution. And, crucially, the final amount of the fine is reliably estimated to be 5 million. (I presume that legal opinion has been sought concerning the likely level of the punishment)
but the qs states”the final amount as a fine has not yet been determined”so can a co. make its own estimate and consider this as a provision?
What’s the definition of a provision? “A provision is a liability of uncertain timing or amount”
Hmmm, does that fit anywhere in your scenario?
IF the amount of the fine cannot be reasonably estimated, then disclose and explain WHY it cannot be reasonably estimated ie what is preventing reasonable estimation?
But if it can be reasonably estimated, then provide
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