Reference no: EM132974386

Question - Oxford Plc is a UK listed group that prepares consolidated financial statements using international financial reporting standards (IFRS). In July 2020 Oxford plc supplied a single, unique product to a company. The product was faulty and in February 2021 the customer initiated proceedings against Oxford plc for losses incurred. A specialist consultant has advised Oxford plc that there is a case to answer. He has estimated that there is a 30% chance of damages amounting to £2 million, a 60% chance of damages amounting to £5 million and a 10% chance of damages amounting to £30 million. No provision has been made. The audit committee believes that Oxford Plc may have insufficient funds to settle damages amounting to £30 million. The year end for Oxford Plc is 31 December 2020.

Explain and justify the required accounting treatment of these issues, preparing calculations where appropriate and showing the presentation requirements.