How two events would be reported in financial statements

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(1) The directors of Replay Co. are engaged in a legal dispute with their customer for supplying faulty products that led to his incurring financial losses. On March 31, 2012, it is estimated that the customer has a 75% chance of winning the suit, in which case he would win damages of $1 million.

(2) The stockroom of Replay Co. developed a moisture problem due to which a batch of inventory was damaged on April 10, 2012. The inventory was manufactured before March 31, 2012 at a cost of $800,000, with the net realizable value before damage estimated at $960,000. The company had to repackage and repair the inventory which cost an additional $150,000. It was sold for $900,000 on May 15, 2012. The company considers any adjustment with respect to this event as material. 

Required - Discuss how the two events would be reported in the financial statements of Replay Co. for the year ended March 31, 2012?

Reference no: EM132538675

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