3 (18 marks) ABC Restaurant ("ABC") has been operating in Hong Kong for 35 years and it is famous for lobster dishes. ABC's accounting year is from 1 January to 31 December. The financial statements of ABC are issued on 15 March in the year following the previous year end. On 14 October 2019, ABC received the lobsters purchased from an overseas supplier at a very low price, but ABC did not know that the lobsters were contaminated. ABC served the contaminated lobsters to customers on 15 October 2019. Many customers felt sick within 4 to 6 hours after they consumed the lobster dishes provided by ABC. Mr. Hung was one of the suffered customers and he died on 16 October 2019. This incident was broadcasted by local TV stations. It was subsequently confirmed that Mr. Hung's death was caused by the high level of poisonous substance from the contaminated lobsters he consumed on 15 October 2019 at ABC. Mr. Hung's family members sued ABC immediately. ABC received the lawyer letter from the law firm representing Mr. Hung's family on 1 November 2019. ABC would receive the final court judgement on 1 March 2020. Based on the judgements of past cases with similar nature, there is a very high chance that ABC needs to compensate Mr. Hung's family and the estimated compensation amounts are in the range of HKD3,000,000 to HKD5,000,000. On 3 February 2020, ABC sold 50% of its assets to ensure it had enough cash to compensate Mr. Hung's family after receiving the court judgement on 1 March 2020. Required: a. With reference to the case, explain why the sale of 50% of ABC's assets ("transaction") that took place on 3 February 2020 is a subsequent event to ABC for the year ended 31 December 2019 and how the transaction should be reported. (6 marks) b. Discuss the step-by-step approaches that a company needs to consider when determining the accounting treatments for contingent liabilities. C. (8 marks) With reference to the case of ABC, discuss ABC's most appropriate accounting treatments as at 31 December 2019 for the pending litigation of Mr. Hung's case. (4 marks) [Total marks for Question 3: 18 marks]