Pelican Limited advised its solicitors to commence an action against its major supplier, claiming damages of €500,000 in respect of losses sustained as a result of the supply of faulty goods.

According to legal advice, Pelican Limited stands a very-good chance of winning its case.

Requirement Indicate how this situation should be dealt with in order to comply with standard accounting practice. (Assume a financial year-end of 31 December 2017 and that the issue is material.)