Stencil Ltd operates mining operations in country F. In one of the unfortunate circumstances, the mine collapsed as a result of an earthquake that was experienced in country F and 6 miners died as a result of this incident while on duty.

The relatives of the deceased miners are seeking legal damages in form of compensation amounting to P280 000 in total but Stencil Ltd is defending itself against liability. The lawyers of Stencil Ltd, up to date that the financial statements have been approved at 31 December 2021, advise Stencil Ltd that it is probable that Stencil Ltd will not be found guilty and liable of the case since it is an act of God.

When Stencil Ltd prepared the Financial Statements for the year ended 31 December 2022, the legal team advised Stencil Ltd that due to the developments at the court of law, it is probable that Stencil Ltd will be found liable of this incident.

Required:

With your understanding of the provisions of IAS 37 Provisions, Contingent Liabilities and Contingent Assets; Disclosures, Discuss the provisions of this standard and advice Stencil Ltd the accounting treatment that should undertake at 31 December 2021 and also at 31 December 2022. (20 Marks).