Sams Ltd is a supermarket and is facing litigations regarding a defective product sold to a customer. The company was told by its lawyers that is it likely to have to pay $100,000 in damages to that customer. A provision was set up as at 31 December 2017. However, the following year, the lawyers found that the damages were more likely to be $500,000.

i. Prepare the double-entry and extract from the financial statements to show how the provision is to be treated and disclosed in the accounts as at: 1. 31 December 2017 2. 31 December 2018 (8 marks)

ii. Explain the rationale underlying the accounting treatment for each year.