QUESTION ONE

Fresh Limited, a manufacturer of toothpaste, was taken to court over alleged defamation

charges when the company accused a rival toothpaste manufacturer of fraud. Before year$-$

end $(31$ December $2020),$ the lawyers of Fresh Limited advised that, although losing the

case was unlikely, legal fees and settlement costs could amount to R$900000$ in the event

that the court case was lost.

On $4$ February $2020,$ the judge presiding over the case ruled that Fresh should pay

R$1000000$ to the plaintiff as well as pay all of the plaintiff's legal fees, which amounted to

R$180000.$ The financial statements had not yet been authorised for issue at the time of the

court ruling.

Required:

Discuss how this information should be treated in the financial statements of Fresh Limited

for the year ended $31$ December $2020.$

Include all relevant definitions.