their financial statement? Recommendation: American Chemical Corporation should accrue and disclose the loss contingency on its Condensed Financial Statements from the lower court’s trial decision in the lawsuit from the Environmental Protection Agency. Sources: Discussion: This memo will discuss the accounting standards and adjustments for accruing and disclosing the loss contingency for American Chemical Corporation (ACC). Mr. Molina and the management team chose not to accrue and disclose
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12-03 Provisions and Contingencies The appropriate accounting standards to recognize and measure are IAS 37 under IFRS and FAS 450-20 under GAAP. Some examples of provisions are given in IAS 37. Standards | IFRS IAS 37 | U.S. GAAP 450-20 | RecognitionIFRS 14 – 35GAAP 450-20-25 | Recognize a Provision when: a) a present obligation exists b) probable outflow of resources (probable = more likely than not) c) a reliable estimate can be madeIf all conditions are not met, no provision shall
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Case Study: Contingency: BP a. A contingent liability is a potential liability that depends on a future event occurring or not occurring; or past events that are not recognized because the outcome is not probable or the amount of obligation cannot be measured. Examples: Law suits and government agencies investigations and product warranties. A contingent liability and the related contingent loss are recorded with a journal entry only if the contingency is both probable and the amount can
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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
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FASB Accounting Standards Codification Written Project (120 points) Due date: May 6 (No late submission is accepted) ------------------------------------------------- Instructions: Answer all three questions listed in the Case 12-3 (Provisions and Contingencies) This assignment is suggested to be a typed double-spaced document between 1 to 4 pages. ------------------------------------------------- Information about FASB Accounting Standards Codification: Analyze the case and provide citations
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Contingency planning: Contingency planning helps to identify alternative course of action to take when things go wrong. Developing a contingency plan involves making decisions in advance about the management of human and financial resources, coordination and communications procedures, and being aware of a range of technical and logistical responses. Such planning is a management tool, involving all sectors, which can help ensure timely and effective provision of humanitarian aid to those
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Contingencies 1. For the year-end December 31, 2007, financial statements, what amount should M record as a liability? For year-end December 31, 2007 M Company should accrue the liability in the amount of 17 million and disclose the liability in the notes of financial statements. M company should accrue the liability for the contingency and disclose the nature of the liability within the notes to the financial statements. This is in accordance with guidance under ASC 450-25-2, which stated, in part:
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MALLESH – PGP/016/086 MEENAKSHI SUBRAMANIAN – PGP/016/90 T DURGALAKSHMI – PGP/016/115 • Operational Excellence considered Bharti’s core competence. This translated to: • “Error-free” customer service • Efficient network management • Provision of low-cost services Now Then Succeeding in the Mobile MarketBharti’s Core Competence • Market is highly competitive • Increasingly, IT expertise is needed for management of services • Network management cannot be the sole differentiator
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outside counsel thought that the company probably would win the suit but pointed out that the decisions thus far were divided, and it was difficult to forecast the outcome. In any event, it was unlikely that the suit would come to trial in 2011. No provision for this loss had been made in the financial statements. 2. The company had a second lawsuit outstanding. It involved a customer who was injured by one of the company’s products. The customer asked for $500,000 damages. Based on
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Factors To deal with the large scale disruptions of global auto supply chains caused by the external environment, three critical avenues are open to automotive OEM’s are: 1. Challenging suppliers to develop disaster plans so that they can make provisions to move to alternate sites for production, in the event that they are unable to produce product at their main plant. 2. Eliminating sole-source suppliers, and developing the capabilities of additional companies. Having one supplier is probably
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