Reference no: EM133055416

Question - SEB Company's December 31, 2018 financial statements are issued on March 31, 2019. The company provided the following selected transactions related to contingencies:

In November 2018, Sabotage became aware of an engineering flaw in a product that poses a potential risk of injury. As a result, a product recall seemed to be inevitable. This situation would more likely cost the entity P1,200,000.

In December 2018, the city of Pasay filed a suit against Seb Company asking civil penalties and injunctive relief for violations of clean air laws. Seb agreed a settlement with the city government to pay P3,360,000.

Seb is a plaintiff in a P3,200,000 lawsuit filed against a customer for cost and lost profit from contract rejected in 2018. The lawsuit is in final appeal and the legal counsel advised that it is virtually certain that Seb will be awarded between P2,000,000 to P2,800,000.

Required -

1. What amount of accrued liability should be reported on December 31, 2018 related to the above information?

2. What amount should be reported as gain from lawsuit for 2018?