Select an annual report of S&G where the company disclosed contingent assets and contingent liabilities. Consider the following three alternatives and the three possible ways to account for them:

Method one: Do not include contingent assets and contingent liabilities in the financial statements. Do not provide information about contingent assets or contingent liabilities in the notes to the financial statements.

Method two: Do not include contingent assets and contingent liabilities in the financial statements. However, disclose details of the contingent assets and contingent liabilities in the notes to the financial statements.

Method three: Fully disclose contingent assets and contingent liabilities, and any gains or losses related to them, in the financial statements.

a) If S&G were to adopt method three (3 marks total):

i. Provide the journal entries (hypothetical in this case) required to recognise the contingent assets and contingent liabilities.

ii. What will the income statement and balance sheet look like after these adjustments? Consider contingent assets and contingent liabilities separately, by providing two scenarios: one where only contingent assets are recognised and one where only contingent liabilities are recognised. Do not offset contingent assets and liabilities.

iii. Would adopting method three result in a more credible presentation of S&Gs financial performance and financial position?