At December 31, Year 5, Creole Co. was suing a competitor for patent infringement. The award from the probable favorable outcome could be reasonably estimated. Creole's Year 5 financial statements should report the expected award as a: a. Receivable and revenue. b. Receivable and reduction of patent. c. Receivable and deferred revenue. d. Disclosure by footnote only.

Question

Joanna Melton

Business

17 October, 20:39

At December 31, Year 5, Creole Co. was suing a competitor for patent infringement. The award from the probable favorable outcome could be reasonably estimated. Creole's Year 5 financial statements should report the expected award as a: a. Receivable and revenue. b. Receivable and reduction of patent. c. Receivable and deferred revenue. d. Disclosure by footnote only.

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Barajas · Answer 1

d. Disclosure by footnote only

Explanation:

A contingent asset is a possible economic benefit that would result in inflow of cash to the entity.

Creole Co has a contingent asset that arises from the court application that it has filed to sue a competitor for patent infringement. It is more likely than not (Probability > 50%) that inflow of cash will occur in Creole's entity.

the events meet the definition and recognition criteria of a contingent asset set in IAS 10. A contingent asset is only disclosed in the Financial Statements.