Question
Iron Man Company provided the following facts regarding pending litigation on December 31, 2020: * The entity is defending against a first lawsuit and believes
Iron Man Company provided the following facts regarding pending litigation on December 31, 2020:
* The entity is defending against a first lawsuit and believes there is a 51% chance it will lose in court. The entity estimates that damages will be P1,000,000.
* The entity is defending against a second lawsuit for which management believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates damages will fall somewhere in the range of P3,000,000 to P5,000,000 with each amount in that range equally likely to occur.
* The entity is defending against a third lawsuit but the relevant probable loss will only occur far into the future. The present values of the endpoints of the range are P1,500,000 and P2,500,000. The management believes the effects of time value of money on these amounts are material but also believes the timing of these amounts is uncertain. * The entity is defending against a fourth lawsuit and believes there is only a 25% chance it will lose in court. If the entity loses, management believes damages will fall somewhere in the range of P3,000,000 to P4,000,000 with each amount in that range equally likely to occur.
* Iron Man is involved in a lawsuit resulting from a dispute with a customer over a 2020 transaction. On December 31, 2020, the lawyers advised that it was probable that Iron Man would lose P3,000,000 in an unfavorable outcome. On February 15, 2021, judgement was rendered against Iron Man in the amount of P4,000,000 plus interest of P500,000. Iron Man does not plan to appeal the judgement. How much liability should be recognized on December 31, 2020?
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