Top Class Products Ltd Manufactures Conveyor Belts for Use in Factories

Top Class Products Ltd manufactures conveyor belts for use in factories. The company knows there are some impending liability claims due to a batch of defective conveyor belts that were made a couple of years ago. These claims have not yet been brought to court. The company's accountant, nevertheless, has shown in the company's 2020 financial statements, a contingent liability of $10 million (shown as product liability claims) based on what the accountant estimates is likely to be a settlement sum to settle these outstanding claims. For tax purposes is the $10 million contingent liability for product liability claims an allowable tax deduction?

A) No as the $10 million is only an estimate and therefore cannot be said to be 'incurred' at this time
B) No as it has not as yet been paid
C) Yes as it is based on a reasonable estimate by a very conservative accountant
D) Yes as it is better showing some amount in the accounts than nothing at all when it is known that there will be some claims that will be made