Ronnies $($Pty$)$ Ltd $("$Ronnies$")$ is a retail company that sells toys and games in South Africa. On $15$ January

$206$ a customer initiated a lawsuit against Ronnies, associated with personal injury caused in September

$205$ when using one of Ronnies' sport games.

Ronnies' lawyers estimate from experience, that at the reporting date $(31$ December $20$x$5)$ the entity has a

$30$ per cent chance of being ordered to pay the customer compensation of CU$3\mathrm{.}5$ million and a $70$ per cent

chance of being ordered to pay compensation of cus$00000.$

The ruling is expected to take place in two years' time in December $202.$

Assume a market interest rate of $10\%.$

YOU ARE REQUIRED TO:

Discuss, with reference to IFRS for SMEs Section $21$ Provisions and Contingencies, how the above events

should be recognised in the financial statements of Ronnies $($Pty$)$ Ltd$,$ if at all, for the year ending $31$

December $205.$