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Supply Commitments

In:

Submitted By nineten1314
Words 356
Pages 2
To: RALPH
From: NAME
Date: April 4, 2011
Subject: Disclosure of supply commitments

We have looked into the situation that surrounds PPI’s noncancelable supply commitments that they have entered into and the accounting/reporting for them in 2003 and 2004. The unrest on Anatu Island may have a significant impact on their operations going forward because of the uniqueness in the dose composition.
In accounting for supply commitments GAAP does not require the recognition or disclosure as they do with purchase commitments. While both may have the same impact on the future risk and cash flows there is no set pronouncement for supply commitments. From our view the FASB has stated in Statement No. 5 if there is a loss contingency that is probable and reasonably estimable it should be accrued against income in the current year. If no accrual is recognized because of uncertainty surrounding the probability or estimability of the contingency a disclosure of the contingency should be made when there is at least a reasonable possibility that a loss will occur. In this disclosure the nature of the contingency and an estimate of the possible loss or range of loss should be stated. If no estimate is able to be made than this should be disclosed in place of an estimate along with the nature.

For 2003 we believe that a disclosure of the supply commitment information should be disclosed in the notes; this provides a more accurate presentation of future supply commitments to shareholders, possible investors, and possible creditors. Because management estimates that they have enough inventories on hand to deliver to their customers for the next year under their supply contracts and are confident of reaching an agreement with the newly formed government by 2005, we believe there is sufficient doubt as to the certainty of the liability and no accrual against is

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