Reference no: EM132712070

Problem 1: During the year, a customer had sued ABC for damages that he claims to have suffered as a direct result of the faulty goods supplied to him by ABC. At the year end, the litigation was in process and the Court had not reached a verdict. The Company's legal advisors suggested that the chance of an adverse opinion against ABC was very low as the contract with the customer explicitly states that the company shall not be liable to such claims. Consequently, no liability was recognized in the financial statements and neither was the contingency disclosed. On 28 August 2019, the court issued a verdict against ABC and ordered the payment of damages amounting P5 million to the claimant within 30 days. The CFO is of the view that the financial statements need not be adjusted because the obligation to pay damages to the customer arose after the year end upon the decision of the court. How should the liability for payment of damages be accounted for in the financial statements for the year ended 30 June 2019?

A. Adjust

B. Disclose

C. Ignore

D. Hindi ko talaga alam