Which is the correct accounting treatment for the claim

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Prior to the financial year end of 31 July 20X7, Woodpoint Ltd has received legal notice from a customer, for a claim of $80,000 for providing poor quality goods which have damaged the customer's plant and equipment. Woodpoint Ltd's lawyers have stated that there is a 25% chance that Woodpoint will successfully defend the claim.

Problem 1: Which of the following is the correct accounting treatment for the claim in the financial statements of Woodpoint Ltd for the year ended 31 July 20X7?

Select one:

a. Provide partially for the claim based on the probability of payout $60,000

b. Provide partially for the claim based on the probability of payout $20,000

c. Disclose a contingent liability of $80,000

d. Provide fully for the expected cost of the claim of $80,000

Reference no: EM132736919

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