What accounting recognition should be accorded the situation

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Reference no: EM132806633

Problem 1: Zyza Company is preparing the annual financial statements on December 31, 2020. Because of a recently proven health hazard in one of the products, the Philippine government has clearly indicated its intention of requiring the entity to recall all cans of this product sold in the last three months. The management of the entity estimated that this recall would cost P870,000. What accounting recognition should be accorded this situation?

a. Expense of P870,000 and liability of P870,000.
b. No recognition
c. Expense of P870,000 and retained earnings restriction of P870,000
d. Note disclosure only

Reference no: EM132806633

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