“Disclosure of Certain Contingency Losses” Exposure Draft Critique Contingencies refer to existing conditions, situations, or sets of circumstances involving uncertainty as to possible gains or losses to an entity that will ultimately be resolved when one or more future events occur or fail to occur (ASC Glossary). The Financial Accounting Standards Board (FASB) issued an exposure draft in July 2010 relating to additional disclosures relating to certain loss contingencies. FASB argues the necessity
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No provision had been made in financial statements. Answer: The transaction should be recognized based on the following points: i. ii. Conservatism concept stated that expenses should be recognized as soon as they are reasonably possible to occur. According to loss contingency, a liability is recognized when information available indicates that it is probable for a liability to occur and when the amount of loss can be reasonably estimated. Therefore, Norman should provide a provision for loss
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Oil Company Inc Inc. Issue: Determining whether various events require the recording of a loss provision or expense accrual on Oil Company Inc Inc's year-end financial statements. Brief Background: Oil Company Inc Inc. operates in the oil industry and its operations sometimes result in soil contamination. Oil Company Inc Inc.'s policy is to clean up any contamination that it causes. New government regulations require Oil Company Inc Inc. to perform certain actions to
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Case 1: Contingencies 1. For the year-end December 31, 2007, financial statements, what amount should M record as a liability? ASC 450-20-25-2 states that: An estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met: a. Information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial
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What is a liability? The answer might seem rather obvious: an amount owed from one entity to another. If the liability bears interest, how is interest expense measured? The simple answer is that interest expense is equal to interest paid. However, life can get a lot more complicated: Does a liability exist if there is no legal liability, but the company has announced a particular commitment or plan of action? How is a liability measured if the obligation is for services, not a set amount of money
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increase the child support and decrease her alimony. The question remains whether this court mandate increasing child support is considered a contingency. Following case law and Treasury Regulations, the change in child support would not decrease the amount of alimony to be recorded because the court ordered increase in child support is not a contingency related to a child, therefore having no effect on the amount of alimony. Maria must recognize the full amount of each alimony payment as part
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considered a loss contingency? 2. Will the loss be accrued, and if so for what amount? 3. What disclosures should be made in the company’s financial Statement? Analysis – Issue 1: Is the lawsuit considered a loss contingency? FASB Accounting Standards (ASC) 450-20 provides information on contingencies, covering the definition of a loss contingency as well as providing examples of loss contingencies. Contingencies are described in (ASC) 450-20-20 as follows: Contingency: An existing condition
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employee who was injured by a product of company. He demanded $500,000 as compensation. But the company thinks that it can be settled at $50,000 and they can win this if this goes on for trial. They decided to report $50,000 as reserve for contingencies corresponding debit to retained earning. In 2004 plant maintenance expenditure was $44000. Normally plant maintenance was about $60,000 a yr. $60,000 had indeed been budgeted for 2006. Income statement of company contains this $60,000for
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external legal counsel (Stripe, Berry, Mills, and Buck LLP) pertaining to the negotiation of the lease terms. We also examined the provision requiring Big Bear to pay a penalty if it were to default under its current credit arrangement with its bank, as well as the effect on monthly payments that are subject to an increase in the consumer price index calculation. Provision One First we will review the costs incurred during the negotiating of the lease terms. Big Bear is required to pay its external
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of the topic, I have come across a few uncertainties with how to interpret our particular situation. To begin with, in accordance to GAAP, in order to recognize a loss contingency, it must be probable, and reasonably estimated. 410-30-25-8 Section 450-20-55 concludes that the criterion for recognition of a loss contingency in paragraph 450-20-25-2(b) is met when a range of loss can be reasonably estimated. Due to the fact that we have not been recognized by the EPA as a potentially responsible
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