Contingencies.

There are three different approaches 1) recorded ( or recognizes) as a liability. 2) disclosed(in the notes to the financial statement) 3)not recorded or disclosed.

Scenario

Batteries4U was a manufacturer of batteries, Portable lighting, and personal care products. Year 1(2009): it was identified as a "potentially responsible party" by a government environmental protection agency and told they might have to share in the cost of an environmental clean-up. Litigation was started. Batteries 4U though the probable outcome would be unfavorable. Year2(2010): Batteries4U was able to reasonably estimate the cost of the clean-up. What would be your approach in each year? Please provide your explanation.