You are employed as a financial reporting consultant for a large supermarket chain called Pipers plc with a year end of 31 August 2022. You have received the following email from them asking for advice.

Litigation :

In August 2022 there was a receipt of legal action from a customer who had been injured by one of our phones going on fire. Based on previous similar cases its the opinion of our lawyers its likely we will lose the court case. In such an event there is a 20% chance we will have to pay damages of 200,000 and an 80% chance we will have to pay out 500,000. However as the fault was partly caused by an error by a supplier its probable well be able to successfully pursue a counter claim for 80% of any damages suffered.

Reply to the email from the client, providing an explanation of the accounting and reporting treatment and where relevant any calculations required.