Subsequent to year end, collective bargaining agreements between the South Shore District Health Authority and several of its collective bargaining units were tentatively settled. An estimated liability of 1% of 2011 2012 compensation for these employees has been recorded in the financial statements. Contracts settled in excess of 1% will be funded by the Department of Health and Wellness, neither the revenue receivable nor the compensation payable related to this excess settlement has been recorded in the financial statements.

1. Using current accounting standards discuss how you would account for the transaction in the 2012 financial statements
2. Alternatively discuss how you would handle this transaction in the 2013 financial statements
3. Provide any journal entries as you deem required.