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2. A company is sued for an injury allegedly provoked by a faulty product and 1,5 mil. EUR are requested by the affected customer. In

2. A company is sued for an injury allegedly provoked by a faulty product and 1,5 mil. EUR are requested by the affected customer. In year N when the lawsuit started the lawyers estimate that the company will not be found guilty. In year N+1 new evidence is used and the lawyer believe now that the company will have to pay for the damage an estimated amount of 1 mil. of the required amount. In N+2 the lawsuit is finalized and the amount paid is 1.2 mil. EUR. a) Discuss when and why a provision is recognized b) Discuss the implications on the financial statements.
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2. A company is sued for an injury allegedly provoked by a faulty product and 1,5 mil. EUR are requested by the affected customer. In year N when the lawsuit started the lawyers estimate that the company will not be found guilty. In year N+1 new evidence is used and the lawyer believe now that the company will have to pay for the damage an estimated amount of 1 mil. of the required amount. In N+2 the lawsuit is finalized and the amount paid is 1.2 mil. EUR. a) Discuss when and why a provision is recognized b) Discuss the implications on the financial statements

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