Question

A customer has filed a suit against a trader who has supplied poor quality
goods to him. It is known that the court judgment will be in favor of the
customer and the trader will be required to pay the damages. However,
the amount of legal damages is not known with certainty. The accounting
year has already been ended and the books are now finalized to ascertain
true profit or loss. The accountant of the trader has advised him not to
consider the expected loss on account of payment of legal damages
because the amount is not certain and the final judgment of the court is
not yet out. Do you think the accountant is right in his approach? Which
accounting concept is involved in above case?

Answer 1

Answer:

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