Reference no: EM132688992

Pennask Corporation follows IFRS. Below are independent situations:

1. During 2020, a factory worker was injured. The accident was partly the worker's fault, and partly Pennask's fault. The employee has sued Pennask Corp. for $600,000. The corporation's legal counsel believes it is possible that Pennask will lose the lawsuit. If they lose, the estimated loss is $150,000 to $400,000.
2. During 2020, Pennask was sued for $2,500,000. The plaintiff is alleging breach of contract, and defense counsel believes an unfavourable outcome is more likely than not. A reliable measurement of the award to the plaintiff is between $600,000 and $1,800,000.
3. During 2020, Pennask sued another company. The corporation's legal counsel believes it is likely that Pennask will be awarded damages of $1,000,000.
4. In November of 2020, one of Pennask's factories caught fire and was destroyed. Insurance will cover the full loss except for a deductible on the policy of $400,000. Pennask is quite concerned that insurance premiums will increase substantially, perhaps even double.

Instructions

Problem 1: For each situation, fully discuss the correct accounting treatment, including any required disclosures. Provide an explanation for your answers.