Reference no: EM132566380

Question 1: A new drug was introduced by OBNOXIOUS HARMFUL Inc. in the market on December 1, 20x1. OBNOXIOUS' financial year ends on December 31, 20x1. It was the only company that was permitted to manufacture this patented drug. The drug is used by patients suffering from an irregular heartbeat. On March 31, 20x2, after the drug was introduced, more than 1,000 patients died. After a series of investigations, authorities discovered that when this drug was simultaneously used with another drug used to regulate hypertension, the patient's blood would clot and the patient suffered a stroke. A lawsuit for ?100,000,000 has been filed against OBNOXIOUS Inc. The financial statements were authorized for issuance on April 30, 20x2. Which of the following options is the appropriate accounting treatment for this post-balance sheet event under PAS 10?

Option a. The entity should provide ?100,000,000 because this is an "adjusting event" and the financial statements were authorized to be issued after the accident.

Option b. The entity should disclose ?100,000,000 as a contingent liability because it is an "adjusting event."

Option c. The entity should disclose ?100,000,000 as a "contingent liability" because it is a present obligation with an improbable outflow.

Option d. Assuming the probability of the lawsuit being decided against OBNOXIOUS Inc. is remote, the entity should disclose it in the footnotes, because it is a non-adjusting material event.