Question

WP's lawyer was unhappy with Anne for settling the lawsuit without consulting her, and she immediately launched an appeal. A letter from the lawyer dated January 10, 20X8, indicates that she is positive that the $800,000 judgment against WP will be refunded, with interest, within two to three years for the following reasons: • Several breaches of protocol by both the plaintiffs' lawyer and the judge in the original court case have been identified. • The person who committed the dangerous act, and who had originally left Canada to avoid charges, has returned to Canada. • There has just been a similar case settled through appeal in a higher Canadian court where the defendant was refunded all of the original damages. Anne now recognizes paying the lawsuit was a mistake. She would like to record a receivable for the reversal of the judgment.

Answer 1

Anne should record a receivable for the reversal of the $800,000 judgment against WP, anticipating the refund with interest, based on the lawyer's confidence in the appeal's success.

Step-by-step explanation:

Anne's decision to settle the lawsuit without consulting WP's lawyer was contested, leading to the immediate launch of an appeal. The lawyer's letter dated January 10, 20X8, outlines compelling reasons for optimism regarding the refund of the $800,000 judgment against WP. Firstly, the identification of breaches of protocol by both the plaintiffs' lawyer and the judge in the original case strengthens the appeal's grounds. Additionally, the return of the individual responsible for the dangerous act, who initially fled Canada to avoid charges, enhances the likelihood of a favorable outcome. Furthermore, citing a recently settled similar case with a full refund in a higher Canadian court adds precedent to support the appeal's success. Considering these factors, it is reasonable for Anne to anticipate the reversal of the judgment and record a receivable for the expected refund with interest.

The decision to record a receivable aligns with the principle of conservatism, where financial statements should not anticipate gains but should provide for all possible losses. Anne's recognition of the mistake in settling the lawsuit and her proactive approach to accounting for the reversal demonstrate a prudent financial management strategy. The anticipated refund with interest, within two to three years, provides WP with the opportunity to rectify the adverse financial impact of the original judgment.

Answer 2

The query is about the legal scenario wherein a lawyer is considering recording a receivable for a potential refund from a successful legal appeal. The confidence in the appeal's success is due to protocol breaches, the return of the responsible person, and a similar case precedent. Accounting standards and professional judgment are crucial in the decision to record such a contingent asset.

Step-by-step explanation:

The specific legal issue presented by the student involves the possibility of recording a receivable for the reversal of a judgment due to anticipated successful appeal in a legal case.

This expectation is based on several reasons: identification of protocol breaches by the plaintiffs' lawyer and judge, the return to Canada of the individual who committed the act leading to litigation, and a precedent of a similar case being overturned on appeal.

The context around the situation suggests that there may be substantial grounds for the appeal, giving the lawyer confidence that the $800,000 judgment against their client will not only be overturned but also refunded with interest.

It should be noted that recording such a receivable would fall under the purview of accounting practices, particularly with regard to the recognition of contingent assets, and should reflect the prudence concept, indicating such an action should only be taken when the refund is deemed virtually certain.

Professional judgment and adherence to accounting standards are integral when considering the recognition of such receivables.