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Does each situation needs to be accrued as provision

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Western Oil Company had several contingent liabilities on December 31, 2020. The auditor obtained the following brief description of each liability.

1. In May 2020, Zarraga bought action against the company for polluting the Zarraga River with its waste products.

It is probable that Zarraga will be successful but the amount of damages Western Oil Company might have to pay should not exceed P1,500,000

2. A personal injury liability suit for P500,000 was brought against Western Oil Company in December 2020.

The management and legal counsel of Western Oil Company concluded that it is not probable that Western Oil Company will be responsible for damages and that P200,000 is the best estimate of the damages.

Required:

Question 1: Does each situation needs to be accrued as provision on December 2020? Why or why not? Support you answer in accordance with PAS 37.

Reference no: EM132604551

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