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Prepares financial statements on december

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Question 1: Dragonfly plc prepares financial statements on 31 December. Assume the company is preparing the statements for 31 December 2019 and seek your advice on the following matter. Explain how the following transactions should have been treated in the statements. Clearly show your workings and provide references as needed.

  • During the year to 31 December 2019, Dragonfly has faced a legal action from one of its employees for unfair dismissal. The claim for the damages is reliability estimated to be of £250,000. On 31 December 2019, Dragonfly's legal advisors believed that the ex-employee did not have strong evidence and therefore the claim is unlikely to succeed.
  • On 1 February 2020, however, before the financial statements were approved, the ex-employee presented valid evidence regarding their unfair dismissal. The court ruled in favour of the ex-employee, and the payment for the damages seemed probable.
  • The company accountant has treated the above as contingent liability in the financial statements for the year ended 31 December 2019 as she believes the court decision and payment relate to year 2020.

Reference no: EM132560149

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