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Provisions and Contingent Liabilities

Your Drive Ltd (‘Your Drive”) is a technology company that developed an app to order a driverless car when a person needs transport. The app tracks the car from when the order is placed by the customer until the customer is safely dropped off at their desired location. Your Drive bought the fleet of driverless cars from Lesla Ltd. The incident involving a driverless car using the Your Drive app On 28 December 2020, a driverless car owned by Your Drive accelerated unexpectedly and crashed into a road construction truck at the side of the road. The person inside the car, Mr Nole Mint, survived but was badly hurt and had to spend 3 months in hospital to recover. This was the first time ever that a driverless car did not follow instructions and went off course without any explanation or warning. The crash caused a media frenzy which reflected adversely on the business reputation of Your Drive. Mr Mint’s legal team contacted Your Drive and indicated that they want to press charges and claim for the damages caused for an amount of $1,000,000. On 31 December 2020 the legal team indicated that they are going to file class-action papers with the High Court in Auckland within the next few days and await the eventual court ruling. Mr Mint is a well-known person in the community and his legal team has won numerous court cases in the past The legal team at Your Drive provided the following information: • Users have to agree to the terms and conditions when they sign up for the app. The terms and conditions state that Your Drive will not be held liable for any injuries or damages while making use of their services. • The legal team has determined that due to the media attention relating to the case, there is a 62% chance that Your Drive will be required to settle, even though it is difficult to determine at this point if Your Drive will be held liable for the crash caused by the driverless car Users have to agree to the terms and conditions when they sign up for the app. The terms and conditions state that Your Drive will not be held liable for any injuries or damages while making use of their services. • The legal team has determined that due to the media attention relating to the case, there is a 62% chance that Your Drive will be required to settle, even though it is difficult to determine at this point if Your Drive will be held liable for the crash caused by the driverless car • The legal team has determined that the case will likely be settled at 50% of the amount claimed • It is probable that the case will be settled by 30 April 2022, at which stage any compensation due would need to be paid. Required: Discuss using sentences and paragraphs the accounting recognition and measurement of the legal claim in the financial statements of Your Drive for the year ended 31 December 2020. Calculate the applicable amount and show all calculations.

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