A consortium formed by Sorvane and a partner has been ordered to pay 2,600,000 to a project owner; both members are jointly and severally liable. The consortium agreement allocates 30% of the charge to Sorvane. The partner, in financial difficulty, will probably be unable to pay a portion of its share equal to 10% of the total amount, which Sorvane expects to have to pay. Compute Sorvane's provision and the amount it treats as a contingent liability.
- Amount awarded
- 2,600,000
- Sorvane's contractual share (%)
- 30 %
- Partner's expected unpaid portion (% of total)
- 10 %