Reference no: EM132817886

Entity A is a listed company that provides food and beverage services to different function centres that host events such as ceremonies, wedding parties and engagement events, etc.

• After a wedding party which is held by one of Entity A's customers in June 2020, 288 people became seriously ill, possibly because of food poisoning from products sold by Entity A. Legal proceedings were commenced seeking damages from Entity A. Entity A disputed liability by claiming that the function centre was at fault for handling the foods and
• beverages incorrectly. Up to the date of authorisation for the issue of the financial statements for the year ended on 30 June 2020, Entity A's legal adviser suggested that it was probable that Entity A would not be liable.
• However, two weeks after the financial statements were published, Entity A's legal adviser suddenly called Entity A that owing to the recent developments in the case, it was probable that Entity A would be liable, and the estimated damages would be material to the company's reported profits.

Problem 1: Should Entity A recognise a liability for damages in its financial statements on 30 June 2020? Explain in detail.

Problem 2: How should it deal with the information it receives 2 weeks after the financial statements are published? Explain in detail.