Question: 1 in early june 2020 summer ltd which operates in...
1 In early June 2020, Summer Ltd which operates in remote Victoria was involved in a dispute with the Victorian Environmental Agency for environmental damages. Summer Ltd contacted its legal team who advised them that potential damages could be in the region of $120,000. The potential liability of $120,000 was shown as a contingent liability in its draft financial statements for the year ended 30 June 2020. In early August (prior to being signed off by the directors of Summer Ltd), the Victorian Environmental Agency found Summer Ltd was liable and damages of $100,000 needed to be paid.
Assume the amount of damages is material. In relation to the above event, explain the impact, if any, on the financial statements of Summer Ltd for the year ended 30 June 2020 to comply with applicable accounting standards. Note the impact, if any, must be shown in dollar amounts.