Concern

Mr. Phil Marsden, a well-known King Island resident, booked the restaurant Rock Lobster for his birthday. The restaurant was closed to the public and many of the guests travelled from interstate and some from overseas for the occasion. The number of guests totalled one hundred. Due to a major electrical fault just before the event, the birthday party at the restaurant could not proceed. Phil was greatly embarrassed, and an alternative arrangement had to be quickly organised. Phil is suing for pain and suffering. He has lodged a writ in the Hobart Magistrates Court.

Required:

Identify the type of liability and the possible impact on the financial reports.

Group of answer choices

The liability would be a Contingent Liability as there is a high degree of uncertainty and the present obligation cannot be measured. The contingent liability is dependent upon the occurrence of an uncertain future event outside the control of the entity. The Contingent Liability would be reported as a Note to the financial reports.

The liability would be a Contingent Liability as there is a low degree of uncertainty and the present obligation cannot be measured. The contingent liability is dependent upon the occurrence of an uncertain future event outside the control of the entity. The Contingent Liability would be reported as a Note to the financial reports.

The liability would be a Contingent Liability as there is a high degree of uncertainty and the present obligation cannot be measured. The contingent liability is dependent upon the occurrence of an uncertain future event outside the control of the entity. The Contingent Liability would be reported as a Current Liability in the statement of Financial Position (Balance Sheet).

The liability would be a Contingent Liability as there is a high degree of uncertainty and the present obligation can be measured. The contingent liability is dependent upon the occurrence of a certain future event outside the control of the entity. The Contingent Liability would be reported as a Current Liability in the statement of Financial Position (Balance Sheet).

The liability would be a Contingent Liability as there is a high degree of uncertainty and the present obligation can be measured. The contingent liability is dependent upon the occurrence of a certain future event outside the control of the entity. The Contingent Liability would be reported as a Note to the financial reports.