The Blaxland Ltd 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 Ltd strongly believe that the company will receive $50 000 to $100 000 if they win the case.Which action is consistent with the Framework?
A) Blaxland Ltd should recognise a receivable of $75 000, the expected value of the gain.
B) Blaxland Ltd should recognise a receivable of $50 000, a conservative estimate of the gain.
C) Blaxland Ltd should not recognise the receivable until it is probable that they have won the case.
D) Blaxland Ltd 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 Framework, a gain should be recognised only when it is probable that the economic benefits associated with the transaction will flow to the entity and the amount of the gain can be measured reliably. In this case, while the solicitors are confident that Blaxland Ltd will receive a gain, it is not yet certain. Therefore, Blaxland Ltd should not recognise the receivable until it is probable that they have won the case. Choice C is the only option that reflects this requirement of the Framework.

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