The Blaxland Plc filed a lawsuit against D-Mart Machineries for failure to comply with the specifications of the factory equipment that they ordered and received.The solicitors for Blaxland Plc strongly believe that the company will receive €50 000 to €100 000 if they win the case.Which action is consistent with the Conceptual Framework?
A)Blaxland Plc should recognise a receivable of €75 000, the expected value of the gain.
B)Blaxland Plc should recognise a receivable of €50 000, a conservative estimate of the gain.
C)Blaxland Plc should not recognise the receivable until it is probable that they have won the case.
D)Blaxland Plc should not recognise the receivable because while the solicitor is expecting to win the case, the receivable cannot be estimated reliably.

Question

Quizplus · Accepted Answer

According to the Conceptual Framework, revenue should only be recognised when it is probable that the economic benefits associated with the transaction will flow to the company and the amount of revenue can be measured reliably. In this case, while the solicitors for Blaxland Plc strongly believe that the company will receive €50 000 to €100 000 if they win the case, it is not yet probable that they have won the case. Therefore, Blaxland Plc should not recognise the receivable until it is probable that they have won the case.

The Blaxland Plc Filed a Lawsuit Against D-Mart Machineries for Failure