The directors of Art Pop Photos Pty Ltd have recently been advised that the company is the defendant in a civil action in which it is alleged that the company has infringed another persons copyright. The Plaintiff is seeking $1,000,000 in damages.

The directors of Art Pop Photos Pty Ltd dispute the claim in its entirety. Whilst the directors are confident the company will be successful in defending the action, the most recent legal advice received in relation to the matter indicates that it is likely that the company may be liable for a total amount of $200,000 to settle the claim. The solicitors estimate that there is a 20 per cent chance the remainder of the claim against the company will be successful.

The court date to hear the matter has been set down for late February 2022.

Required:

Discuss the appropriate accounting treatment and related disclosures required to be included in the 31 December 2021 annual financial statements to ensure compliance with AASB 137.