...A contingent liability is a potential loss that may occur at some point in the future, once various uncertainties have been resolved. This liability is not yet an actual, confirmed obligation. The exact status of a contingent liability is important when determining which liabilities to present in the balance sheet or in the attached disclosures. It is of interest to a financial analyst, who wants to understand the probability of such an issue becoming a full liability of a business, which could impact its status as a going concern. Examples of contingent liabilities are the outcome of a lawsuit, a government investigation, or the threat of expropriation. A warranty can also be considered a contingent liability, since there is uncertainty about the exact number of units that will be returned by customers for repair or replacement. For example, ABC Company files a lawsuit against Unlucky Company for $500,000. Unlucky’s attorney feels that the suit is without merit, so Unlucky merely discloses the existence of the lawsuit in the notes accompanying its financial statements. Several months later, Unlucky’s attorney recommends that the company should settle out of court for $75,000; at this point, the liability is both probable and can be estimated, so Unlucky records a $75,000 liability. The accounting rules for the treatment of a contingent liability are quite liberal - there is no need to record a liability unless the risk of loss is quite high. Thus, you should review the...
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...Compiled AASB Standard AASB 137 Provisions, Contingent Liabilities and Contingent Assets This compiled Standard applies to annual reporting periods beginning on or after 1 January 2011 but before 1 July 2013. Early application is permitted. It incorporates relevant amendments made up to and including 27 October 2010. Prepared on 26 November 2010 by the staff of the Australian Accounting Standards Board. Obtaining Copies of Accounting Standards Compiled versions of Standards, original Standards and amending Standards (see Compilation Details) are available on the AASB website: www.aasb.gov.au. Printed copies of original Standards and amending Standards are available for purchase by contacting: The Customer Service Officer Australian Accounting Standards Board Level 7 600 Bourke Street Melbourne Victoria AUSTRALIA Phone: Fax: E-mail: Website: Postal address: PO Box 204 Collins Street West Victoria 8007 AUSTRALIA (03) 9617 7637 (03) 9617 7608 publications@aasb.gov.au www.aasb.gov.au Other Enquiries Phone: Fax: E-mail: (03) 9617 7600 (03) 9617 7608 standard@aasb.gov.au COPYRIGHT © 2010 Commonwealth of Australia This compiled AASB Standard contains IFRS Foundation copyright material. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and enquiries concerning reproduction and rights...
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...Situation 1 A company offers a one-year warranty for the product that it manufactures. A history of warranty claims has been compiled, and the probable amounts of claims related to sales for a given period can be determined. When a company sells a product subject to a warranty, it is probable that there will be expenses incurred in future accounting periods relating to revenues recognized in the current period. These expenses could be incurred due to damage or faulty materials. As such, a liability has been incurred to honor the warranty at the same date as the recognition of the revenue. Based on prior experience or technical analysis, the occurrence of warranty claims can be reasonably estimated and a probable dollar estimate of the liability can be made. The contingent liability for warranties meets both of the requirements from the accrual of a loss contingency, and the estimated amount of the loss should be reflected in the financial statements. In addition to recording the accrual, it may be advisable to disclose the factors used in arriving at the estimate by means of a note, especially when there is a possibility of a greater loss than was accrued. Situation 2 Subsequent to the date of a set of financial statements, but prior to the issuance of the financial statements, a company enters into a contract that will probably result in a significant loss to the company. The amount of the loss can be reasonably estimated. Even though: (1) there is a probable...
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...Facts: • An accrual basis taxpayer Charles Cho engages in a Section 351 transaction with the newly-formed Patten Corporation. • In the transaction, Cho transferred his gas station to Patten, in exchange for the stock of Patten and assumption of the contingent environmental liabilities. • The land underneath the gas station has potential environmental problems but Cho did not take any remediation to fix environmental problems before the exchange. • A year later, Patten pays a third party $100,000 for environmental clean-up costs to remediate the site. • The transaction does not have tax avoidance purpose. Issues The main issue encountered in this case is whether the contingent environmental liabilities assumed by Patten is a liability that would give rise to a deduction within the meaning of Internal Revenue Code (IRC) section 357 (c)(3) and whether Cho’s basis in the stock is determined by reference to Section358 (d)(1) or Section 358 (d)(2). The issue for Patten is how to determine the tax consequence based on the transaction. Applicable Laws The most pertinent Sections are directly cited form Code and listed as below: IRC Section 351(a): “No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in section 368(c) of the corporation.” IRC Section 357(a): “Except as provided...
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...respect to contingent liabilities, the proposal suggests that current obligations are the only ones to consider when accounting for liabilities, which in themselves should be stated separately from the events which may dictate their occurrence. The uncertainty of the events themselves should also be disclosed, when presenting the measurements for the liability. Additionally, defining contingency with regard to the amount required to settle a liability rather than the probability of its occurrence will aid the goal of better recognition rather than simple disclosure. Similarly, with respect to contingent assets, the proposed changes require elimination of the term “contingent asset,” and clarify that purely the rights associated with a past transaction or event give the ability to recognize an asset as such, to be controlled by an entity. The amendment proposal also inquires into the need for further guidance on how the creation of a constructive obligation is incurred, and proposes to omit the criterion of probability recognition, due to the contingent liabilities proposed change of recognizing the liability and applying contingency as a term solely for the amount and not the possibility of the liability. With regard to measurements, the proposal adds non-financial liability measurement to be determined in terms of the amount an entity would rationally pay to settle the present obligation, states the cash flow method as viable for measuring the above named liabilities, and...
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...Attorney FEES – Lovell * American rule: - every party takes care of Attorney fees * Some states have embraced the catalyst theory – * England has fee shifting in every civil case: - there is a SC that determines nothing in England but attorney fees. * The reality with this is that there is less litigation because any losing party has to pay the others fee. * The cost should be reasonable so you can’t just say that you billed all the amount and now need to be paid. * Civil rights attorney fee: - The second front: - The battle lines for civil rights – there is grudging attitude on court awarded attorney fees – since 1987 we have had the grudging area of the court allowing attorney fees – hard to get fees if prevailing party, hard to calculate – grudging – * The attorney fee is statutory – so congress can change the rules. * The case below – if negotiating on fees as a plaintiff then negotiate the fees in the agreement (attorney fees) – so you negotiate the fee with the settlement decree or you will be out of luck. * Dissent: - * Pg. 912- there is a 2 tier standard for a prevailing P: - * You get the fees regularly absent circumstances that would render the fee unjust. E.g pro se representation. * Garland independent school: - ct held that you don’t need a central issue standard; - just need to point to a ….. Civil Rights Attorneys’ Fees Award Act of 1976 (42 U.S.C. § 1988(b)) 1. In any action or proceeding to enforce...
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...A contingent fee (in the United States) or conditional fee (in England and Wales) is any fee for services provided where the fee is payable only if there is a favourable result. In the law, it is defined as a "fee charged for a lawyer's services only if the lawsuit is successful or is favorably settled out of court.... Contingent fees are usually calculated as a percentage of the client's net recovery."[1] In the English legal system, it is generally referred to as no win no fee. A conditional fee agreement between a law firm and a client. The usual form of this agreement is that the solicitor will take a law case on the understanding that if lost, no payment is made. However, if the case is won, the lawyer will be entitled to the normal fee based on hourly billing, plus a success fee. The success fee in England must be as a percentage no greater than 100% of the normal fee. This contrasts with the contingency fee in the US, which gives the successful attorney a percentage of the damages awarded in favor of his client. This makes it easier for the poor to pursue their civil rights since otherwise, to sue someone for a tort, one must first be wealthy enough to pursue such litigation in the first place. However, because of the high risk, few attorneys will take cases on a contingency basis unless they feel the case has good merit. According to a 2004 book by law professor Herbert Kritzer, contingent fees were allowed as of that year in the following countries: Australia...
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...Civil Justice Tutorial III i. What is proportionality and why is it so “new” in the Civil Procedure Rules? To extent does it different proportionality a. under the EHCR (Campbell case) to assess different right sets of rights b. after the Jackson reforms? Jackson is just in relation to costs – cases that are justly and in relation to proportional costs focus on the system as a whole Campbell v Mirror Group Newspaper Ltd (Costs) HL (2005) A model sues a newspaper for breach of confidence. The case go through HC and CA. On appeal to HL, Campbell solicitors and barristers work on a CFA basis (95% success fee for solicitors, 100% success fee for barristers. She wins case (3,5000 compensation awarded) + costs (1, 086, 295 inc. success fee of 279, 981) The claimant appealed against the denial of her claim that the defendant had infringed her right to respect for her private life. She was a model who had proclaimed publicly that she did not take drugs, but the defendant had published a story showing a picture of her leaving a drug addiction clinic, along with details of her addictions and the treament she had received. Held: The law of confidence is now better characterised as misuse of private information. “The need to be free to disseminate information regarding Miss Campbell’s drug addiction is of a lower order than the need for freedom to disseminate information on some other subjects such as political information. The degree of latitude reasonably...
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...Ampersand LLP Beaumont, TX TO: Partner FROM: Staff Accountant DATE: March 24, 2016 ------------------------------------------------- SUBJECT: Memorandum Privileged and Confidential Relevant Facts In 2013, Mr. Hobby suffered serious bodily injury while working at a local refinery in Beaumont. On his 2013 tax return, he deducted medical expenses of $25,000. On his 2014 tax return, he deducted medical expenses of $15,000. In 2015, Hobby won a civil lawsuit connected to his injury in 2013. He was awarded as follows: Punitive damages $150,000.00, reimbursement of medical expense $40,000.00, emotional distress $75,000.00, pain/suffering $200,000.00, interest $7,500.00, and attorney’s fees $25,000.00, totaling $497,500.00. Specific Issues Which portion of the award for damages is taxable in 2015? Support and Analysis Per IRC §104(a)(2), any damages (excluding punitive) received on account of personal physical injury are excluded from gross income. Therefore, both $75,000 for emotional distress and $200,000 for pain and suffering are a result of the injury and can be excluded from income. Treas. Reg. §61.1-14(a) specifies “for example, punitive damages…are gross income” meaning that the $150,000 of punitive damages from this lawsuit are considered gross income. These are considered income because the punitive award is primarily to punish the wrongdoer, and is not compensatory for the physical injury. However, IRS publication 4345 (Rev 4-2015) explains that income...
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...This agreement is BETWEEN _______________(bodyguard’s name) hereinafter referred to as Bodyguard and Individual and/or Company:________________________________________Client’s name on above line. Represented by: _____________________________________ Address:_________________________________________City:_________________________State:________Zip:_______ Hereinafter referred to as Client. A usable copy of this contract follows this explanation. All the first part, above, is doing is stating that this contract is between (fill in your name) and the client. (Fill in his personal name, company name, address). The client may want to have his attorney see this contract. 1. Purpose of Agreement: Circumstances have lead Client to believe that he, or other parties, are being targeted by criminal forces of some kind and he hereby agrees to contract with Bodyguard to provide personal protection services for himself and/or other parties for the length of time specified in this agreement. NOTE: Purpose of agreement. This is a statement stating that your client needs your assistance, and you are negotiating this agreement. 2. Duration: This contract shall be for a period of____________________________ from the below date. Contract must be signed by both parties and will remain in force unless terminated under conditions listed in Paragraph 3. If this contract should be terminated, for any reason, before the expiration date payment client agrees to pay bodyguard...
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...1. Concerning Joe Accountant, he should be found violating article of AICPA’s Code of Professional Conduct by the Joint Trial Board and should receive a revoking of his CPA credentials by the Board as punishment. At the issue Joe Accountant is whether or not violated article of AICPA’s Code of Professional Conduct, Joe found out the unethical and illegal actions taken by his superior, John Boss, and his client, Barbara Doctor, during his attest performance; However, He did take the proper action to address his findings and failed to prepare an amended tax form for Barbara’s 2011 taxes. As John ordered Joe to do before John left the firm, Joe did destroy material audit records. According to AICPA’s Code of Professional Conduct, members of the AICPA are responsible for the rules addressed in the Code. Joe Accountant’s actions should be considered under the following rules: Article II (The public interest): “members should accept the obligation to act in a way that will serve the public interest, honor the public trust…” Article III (Integrity): “to maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.” Under the section of Subordination of Judgment, “the Code provides a three-step procedure so that members may rest assured that they have not improperly subordinated judgment.” (The Ethical and Legal Environment of Accounting, 2-4) The three steps are summarized as: 1. Consider if...
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...162,264,224 83,997,387,679 Taka (Audited) 1,938,163,866 4,715,736,654 6,653,900,520 9,941,747,284 272,069,775 10,213,817,059 820,000,000 9,669,879,937 16,000,000 9,685,879,937 44,048,957,314 4,311,738,981 50,293,324 48,410,989,619 1,773,599,221 3,922,343,126 81,480,529,482 Taka 1,507,701,863 4,131,547,154 5,639,249,017 2,920,189,386 (37,196,795) 2,882,992,591 2,365,000,000 8,289,142,464 19,000,000 8,308,142,464 37,255,081,586 3,300,327,431 599,526,336 41,154,935,353 1,514,454,561 3,085,328,732 64,950,102,718 Fixed assets including land, building, furniture and fixtures Other assets Non-banking assets TOTAL ASSETS LIABILITIES AND CAPITAL Liabilities Borrowings from other banks, financial institutions Deposits and other accounts Current deposits and other accounts Bills payable Savings bank deposits Term deposits Other liabilities Subordinated debt TOTAL LIABILITIES 1,940,530,900 2,511,486,589 656,557,191 12,234,570,407 982,629,706 24,625,099,865 32,286,541,418 70,128,841,396 5,630,947,255 1,514,731,226 79,215,050,777 11,448,356,019 994,834,821 22,344,361,766 33,000,980,429 67,788,533,035 5,313,981,373...
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...Types of Liabilities Liabilities are classified in different types. The two main categories of these are current liabilities and long-term liabilities. Current Liabilities Current liabilities are often loosely defined as liabilities that must be paid within a single calender year. For firms with operating cycles that last longer than one year, current liabilities are defined as those liabilities which must be paid during that longer operating cycle. A better definition, however, is that current liabilities are liabilities that will be settled either by current assets or by the creation of other current liabilities. Example of current liabilities include accounts payable, short-term notes payable, commercial paper, trade notes payable, and other liabilities incurred in the normal operations of the business. Some of these normal operating costs include salaries payable, wages payable, interest payable, income tax payable, and the current balance of a long-term debt that will be due within a single year. Other long-term obligations, such as bonds, can be classified as current because they are callable by the creditor. When a debt becomes callable in the upcoming year (or operating cycle, if longer), the debt is required to be classified as current, even if it is not expected to be called. If a particular creditor has the right to demand payment because of an existing violation of a provision or debt statement, then that debt should be classified as current also. In situations...
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...CHAPTER 11 LIABILITIES 1. INTRODUCTION. a. Applicability. The applicability of this chapter is specified in Chapter 1, “Accounting Overview.” Background/Authorities. This chapter prescribes the policies and general procedures for recording and reporting liabilities consistent with the Statement of Federal Financial Accounting Standards (SFFAS) or Government Accountability Office (GAO) Title 2 standards in the absence of SFFAS. Liabilities include accounts payable; accrued expenses; interest payable; accrued payroll and benefits; accrued leave; deferred revenues, including advances; deposit funds; debt issued under borrowing authority; bonds; loan guarantees and loan commitments; contingent liabilities; lease liabilities; and unfunded liabilities. Policy/Objectives. (1) All liabilities shall be measured and recorded as accurately as possible, given the circumstances under which the liability was created. Liabilities recorded in financial statements shall reflect invoices received and accruals for any costs incurred, and assets received for which progress billings, grant reimbursement requests, and other billings have not yet been received. Liabilities shall be recorded and/or footnoted irrespective of whether funds are available or authorized for payment. Contingent liabilities shall be recorded as incurred liabilities if the loss is probable and the amount can be reasonably estimated. Loss contingencies that are judged to have a reasonably possible chance of occurring or that...
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...ACCT 2015 INTERMEDIATE FNANCIAL ACCOUNTING 11 Current Liabilities, Contingencies & Provisions Required Reading: Alfredson – Chap 5, Keiso – Chaps 13, IAS 37 Learning Objectives 1. CURRENT LIABILITIES: – Define and explain types of current liabilities. – Account for the major types 2. IAS 37 PROVISIONS & CONTINGENCIES – Define Provisions and answer the following questions: • • • Why do them When to provide How much to provide – Calculate and account for Restructuring Provisions – Define Contingent Assets & Liabilities and apply relevant measurement and recognition rules – Apply IAS 37 Disclosure Requirements CURRENT LIABILITIES LIABILITY – Claims against the business arising out of a past transaction that will cause an outflow of resources e.g. loans, notes payable • Long-Term Liability - Obligations that a company does not reasonably expect to liquidate within the normal operating cycle Current Liability - Obligations that a company reasonably expects to liquidate either through the use of current assets or the creation of other current liabilities. • 1 CURRENT LIABILITIES E13-2 (Accounts and Notes Payable) The following are selected 2007 transactions of Sean Astin Corporation. Sept. 1 - Purchased inventory from Encino Company on account for $50,000. Astin records purchases gross and uses a periodic inventory system. Oct. 1 - Issued a $50,000, 12-month, 8% note to Encino in payment of account. Oct. 1 - Borrowed $50,000 from the Shore Bank by signing...
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