Michael Orwell is a farmer carrying out field trials of genetically modified corn. One of his neighbours, an organic farmer, has obtained a court order

(i) Restraining Michael from sowing more GM seeds and

(ii) Awarding damages to be assessed when Michael harvests his crop.

The damages would be the difference in selling price between organically certified corn and noncertified corn. The amount will not be known for certain until the harvest in the summer but the best estimate, based on acreage and the expected market prices, is £3,000.

Required:

(a) Bearing in mind that £3,000 is the best estimate of damages payable, explain why the liability should be accounted for and whether it should be described as a provision.

(b) Set out the journal entry accounting for the liability.