Anisa Muzaqi 4C Lat 2 4 Brooks Corporation

NAMA : ANISA MUZAQI
KELAS : AKS 4 C
(a) 1. Loss from Uninsured Accident 250000

Liability for Uninsured Accident 250000
2. Loss from Expropriation 1925000
Allowance for Expropriation 1925000
[€5,725,000 – (40% X €9,500,000)]
3. No entry required.
4. Loss on Lease Contract 950000
Lease Contract Liability 950000
5. No entry required.
(b) 1. A loss and a liability have been recorded in the first case because
(i) the company has a present obligation as of the date of the
financial statements as the result of a past event,
(ii) it is probable that an outflow will be required to settle the obligation, and
(iii) a reliable estimate can be made. That is, the occurrence of the
uninsured accidents during the year plus the outstanding injury
suits and the attorney’s estimate of probable loss required
recognition of a contingent liability.
2. An entry to record a loss and establish an allowance due to threat

of expropriation is necessary because the expropriation is imminent
as evidenced by the foreign government’s communicated intent
to expropriate and the virtual certainty of a settlement from the
government. That is, enough evidence exists to reasonably estimate
the amount of the probable loss resulting from impairment of assets
at the reporting date. The amount of the loss is measured by the
amount that the carrying value (book value) of the assets exceeds
the expected compensation. At the time the expropriation occurs,
the related assets are written off against the allowance account.
In this problem, we established a valuation account because
certain specific assets were impaired. A valuation account was
established rather than a liability account because the net
realizability of the assets affected has decreased. A more appropriate
presentation would, therefore, be provided for statement of
financial position purposes on the realizability of the assets. It
does not seem appropriate at this point to write off the assets
involved because it may be difficult to determine all the specific
assets involved, and because the assets still have not been expropriated.
3. Even though Polska’s chemical product division is uninsurable
due to high risk and has sustained repeated losses in the past, as
of the reporting date no assets have been impaired or liabilities
incurred nor is an amount reasonably estimable. Therefore, this
situation does not satisfy the criteria for recognition of a
contingent liability. Also, unless a casualty has occurred or there is
some other evidence to indicate impairment of an asset prior to the
issuance of the financial statements, there is no disclosure
required relative to a contingent liability. The absence of insurance
does not of itself result in the impairment of assets or the
incurrence of liabilities. Expected future injuries to others or
damage to the property of others, even if the amount is reasonably
estimable, does not require recording a loss or a liability. The cause
for loss or litigation or claim must have occurred on or prior to the
reporting date and the amount of the loss must be reasonably
estimable in order for a contingent liability to be recorded.
Disclosure is required when one or both of the criteria for a
contingent liability are not satisfied and there is a reasonable
possibility that a liability may have been incurred or an asset
impaired, or, it is probable that a claim will be asserted and there
is a reasonable possibility of an unfavorable outcome.
4. By moving to another factory, Polska has a lease contract with

unavoidable costs of meeting the obligations that exceed the
economic benefits expected to be received. This is considered an
onerous contract and the expected costs to satisfy the onerous contract should be accrued
5. Possible favorable outcomes from pending court cases are

considered contingent assets. Contingent assets are not
recognized unless the outcome is virtually certain. The outcome in
Polska’s situation is not virtually certain. The evidence provided
does not even support that the outcome is probable (an attorney
opinion should be provided). Without evidence that the outcome
is probable, the litigation should not be disclosed.
d or there is
prior to the
of insurance
y. The cause
prior to the
nerous contract should be accrued
outcome in

Anisa Muzaqi 4C Lat 2 4 Brooks Corporation

Uploaded by

Copyright:

Available Formats

Anisa Muzaqi 4C Lat 2 4 Brooks Corporation

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Anisa Muzaqi 4C Lat 2 4 Brooks Corporation

Uploaded by

Copyright:

Available Formats

NAMA : ANISA MUZAQI

(a) 1. Loss from Uninsured Accident 250000

2. An entry to record a loss and establish an allowance due to threat

4. By moving to another factory, Polska has a lease contract with

5. Possible favorable outcomes from pending court cases are

nerous contract should be accrued

You might also like