i) Candel is being sued by a customer for $2 million for breach of contract...
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Accounting
i) Candel is being sued by a customer for $2 million for breach of contract over a cancelled order. Candel has obtained legal opinion that there is a 20% chance that Candel will lose the case. Accordingly Candel has provided $400,000 ($2 million 20%) in respect of the claim. The unrecoverable legal costs of defending the action are estimated at $100,000. These have not been provided for as the case will not go to court until next year.
ii) Hamlet is a subsidiary of Borough Corporation. Hamlet's statement of financial position includes a loan of $25 million that is repayable in five years' time. $15 million of this loan is secured on Hamlet's property and the remaining $10 million is guaranteed by Borough in the event of a default by Hamlet.
Describe, and quantify where possible, how items (i) and (ii) above should be treated in Borough's financial statement and notes for the year ended 30 September 20X1. In the case of item (ii) only, distinguish between Borough's entity and consolidated financial statements and refer to any disclosure notes.
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