Question 2

An ex-employee of the company sued the company for an injury suffered, while an employee of the company, in the workplace on December 2022. On 25 May 2023, the court found that the cause of the injury was the companys lack of compliance with safety requirements and therefore Flummoxed was liable to pay damages. The amount of damages to be paid will be determined by the court in the coming weeks. Flummoxed Limiteds lawyers have estimated the amount of damages to be approximately $120,000 based on past similar cases. Three of the directors have different views on how this should be reflected in the financial statements. One of the directors thinks that this amount should be accounted for in the financial statements for the year ended 15 May 2023 as a liability. The second director thinks that a provision instead of a liability should be recognised but cant explain the difference between a provision and a liability. The third director argues that it should not be recognised at all in the financial statements for the year ended 15 May 2023, since the court case was finalized after the year end, i.e. on 25 May 2023.

Required

Can you please address each of the directors views and explain in detail the correct accounting treatment and show relevant journal entries if any.