Case 13-8:Accounting for a Loss Contingency for a Verdict Overturned on Appeal Essay

877 WordsDec 14, 20134 Pages
Case 13-8: Accounting for a Loss Contingency for a Verdict Overturned on Appeal 1. According to the case, it shows that management of M determined that a loss would be “probable” and the estimate range would be $15 million to $20 million. However, they determined $17 million would be the “most likely” amount of loss. According to ASC 450-20-25-1, “When a loss contingency exists, the likelihood that the future event or events will confirm the loss or impairment of an asset or the incurrence of a liability can range from probable to remote. As indicated in the definition of contingency, the term loss is used for convenience to include many charges against income that are commonly referred to as expenses and others that are commonly referred to as losses. The Contingencies Topic uses the terms probable, reasonably possible, and remote to identify three areas within that range.” Moreover, ASC 450-20-25-2 shows 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 statements. Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss. b. The amount of loss can be reasonably estimated.” Therefore, they should disclose the most likely amount of loss which is $17 million as a liability. Furthermore, they also need to disclose “a. The nature of the contingency, b. An estimate of the possible loss or range of loss or a statement that such an estimate cannot be

More about Case 13-8:Accounting for a Loss Contingency for a Verdict Overturned on Appeal Essay

Open Document