Gabriels’ Bakery is guilty of supplying stale bread to some of its retailers and, as at 31 December 2011, expects to receive claims for compensation. All customers are expected to claim back the amount at which they were invoiced and some expected to claim also compensation for loss of earnings at 10% of the invoiced amount. With a view to maintaining relationships Gabriels would not contest the claims. The position has been summarised as follows:

Required: 

Explain how the amounts claimed should be treated when preparing the financial statements for the year ended 31 December 2011.

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Retailer Amount of sales groups ABC £450,000 £300,000 £250,000 Percentage expected to claim back the sale price 100 100 100 Percentage expected to claim compensation 60 40