approximately 100 words Ultron Ltd has been sued by the municipal council for polluting the local...

approximately 100 words

Ultron Ltd has been sued by the municipal council for polluting the local river. It is very likely that Ultron Ltd will lose the case. However, the lawyers have advised Ultron Ltd that at this time it would not be possible to estimate what the total damages would be.

Required:

Should Ultron Ltd recognize a liability for this event? Justify your answer by reference to the definitions and recognition criteria in the Conceptual Framework.

Solutions

Expert Solution

A contingent liability is an obligation to pay that may arise depending upon the outcome of future event.

A contigent liability is recognised only if it is probabale that there will be an outflow of econmic resources and that outflow can be reasonabally estimated.

In the given situtaion Ultron ltd has been sued for polluting river,on losing the case Ultron will be required to pay depending upon the outcome of the case.Since the obligation to pay depend on the outcome of future event it is a conitgent liability.

A contingent liability is only recorded if the outflow is probabale and it can be reasonabally estimated.In the given case the lawyers of the Ultron ltd says that it is very likely that ultron will lose th case so the outflow of resources is probable but the lawyers can not measure the damages, so the outflow can not be reasonabally estimated.

So, since outcome is probable but can not be reasonabally estimated Ultron ltd should not recognise a liability for this event.

ekkarill92 answered 1 year ago

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