Question

Respond to the following in a minimum of 175 words:

Apple has decided to sue one of the popular games call Fortnite for breach of contract. The article shows that Apple suit came after Fortnite allowed other methods of payments other than Apple Pay. Apple has blocked the game from being sold on the Apple Store. From the standpoint of Apple, can you tell me how they should include this lawsuit in their financial statements?

Answer 1

Companies have to mandatorily disclose all the law suit no matter if a suit is filed by company against another party or a suit is file against the company by another party.

And the company has to disclose such information in footnotes of their financial statements because it might affect the decision of potential shareholders of investing in a company or not. Non-disclosure of law suit would attract penalities by the Companies Act.

Thus, Apple has to disclose this information in the footnotes of the financial statements.

Although, lawsuit is filed by Apple against Fornite still Apple cannot show this as its assets in the financial statements following the principle of Conservatism i.e. future gains should not be ignored and future losses should be recognized.

Thus, Apple should not present it as an asset until that law suit against Fornite proved to be favourable for Apple and thus, Apple has to show in the footnotes of its financial statements.