Tres Ltd, a listed company, provides food to function centres that host events such as weddings

and engagement parties. After an engagement party held by one of Tres Ltd's customers in June

2017, 100 people became seriously ill, possibly as a result of food poisoning from products sold by

Tres Ltd. Legal proceedings were commenced seeking damages from Tres Ltd, which disputed

liability by claiming that the function centre was at fault for handling the food incorrectly. Up to

the date of authorisation for issue of the financial statements for the year to 30 June 2017, Tres

Ltd's lawyers advised that it was probable that Tres Ltd would not be found liable. However, two

weeks after the financial statements were published, Tres Ltd's lawyers advised that, owing to

developments in the case, it was probable that Tres Ltd would be found liable and the estimated

damages would be material to the company's reported profits.

Required

Should Tres Ltd recognise a liability for damages in its financial statements at 30 June 2017? How

should it deal with the information it receives two weeks after the financial statements are

published? Use the Decision Tree to assist you in deciding.