(a) How does IAS 37, Provisions, Contingent Liabilities and Contingent Assets, distinguish the identification and accounting for a liability, a provision and a contingent liability?

(b) State with reason how you would account for the following items: 

(i) The directors of a company have discovered a painting in a cupboard and have sent it to an auction house, who have confirmed that it should sell for £1 million in the following month’s auction.

(ii) A claim has been made against the company for injury suffered by a pedestrian in connection with building work by the company. Legal advisers are of the view that the company will probably have to pay damages of £200,000 but that a claim can be made against the building subcontractors for £100,000.

(iii) The manufacturer of a snooker table has received a letter from a professional snooker player, who was defeated in the final of a major snooker competition, threatening to sue the manufacturer for £1 million, being his estimate of his loss of earnings through failing to win the competition, on the grounds that the table was not level.