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Case D ? ( ) After a wedding in 2 0 X 0 , ten people died, possibly as a result of food poisoning from

Case D?()
After a wedding in 20X0, ten people died, possibly as a result of food poisoning from products
sold by company DAVO. Legal proceedings are started seeking damages of $10 million from
DAVO but DAVO disputes the liability. Up to the date of authorisation of the financial
statements for the year to 31 December 20X0 for issue, DAVO's lawyers advise that it is
probable that DAVO will not be found liable. However, when DAVO prepares the financial
statements for the year to 31 December 20X1, its lawyers advise that, owing to developments
in the case, it is probable that the entity will be found liable for an estimated damages of
$17 million. ?()
(i) How much liability should DAVO recognize in its financial statements for year
ended 31 December 20X0? Briefly explain your reasons.
(ii) How much liability should DAVO recognize in its financial statements for year
ended 31 December 20X1? Briefly explain your reasons.
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