Melville Ltd received a material claim for damages from a customer for not delivering ordered goods on time.The customer insists that Melville Ltd's late delivery resulted to significant losses to the customer.Melville Ltd admits to the delay but disputes the material damages being claimed.What is the appropriate accounting treatment for the claim that is in accordance with AASB 137?

Question

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AASB 137 requires recognition of a provision for a liability when there is a present obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. As Melville Ltd admits to the delay, there is a present obligation. It is also probable that an outflow of resources will be required to settle the obligation as the customer insists there were significant losses. Therefore, Melville Ltd should recognise the best estimate of the liability.

Melville Ltd Received a Material Claim for Damages from a Customer