Chapter 12: Financial Liabilities and Provisions
Case 12-1 Prescriptions Depot Limited 12-2 Camani Corporation Suggested Time Technical Review TR12-1 Provision—Measurement 10 TR12-2 Provision—Warranty 5 TR12-3 Note Payable 5 TR12-4 Discounting—Note Payable 10 TR12-5 Discounting—Provision 10 Assignment A12-1 Common Financial Liabilities 10 A12-2 Common Financial Liabilities—Taxes 20 A12-3 Common Financial Liabilities—Taxes 20 A12-4 Foreign Currency Payables (*W) 10 A12-5 Common Financial Liabilities & Foreign Currency 25 A12-6 Provisions 20 A12-7 Provisions (*W) 20 A12-8 Provisions 20 A12-9 Provision Measurement 15 A12-10 Provision Measurement 15 A12-11…show more content… Therefore, more than $25,000 should be recorded – the $50,000 (two payouts and the expected value) can be justified.
10. Accounting for the lawsuit is complicated at this stage because the company and/or the lawyer would be unwilling to admit in print (i.e., in the financial statements) that they would settle the lawsuit, and at what amount. This might provide too much information to the plaintiff that hurt company interests. Note disclosure of the lawsuit, in general terms, is the likely outcome, although an accrual for $150,000 would be made if the company were to share this information with its accountants. This is the ethically appropriate outcome. When the accrual is made, separate disclosure would be minimal so its treatment would not be obvious to the plaintiff. 11. A purchase order is an executory contract, and is not a liability until the other party performs its obligations under the contract. That is, the amount becomes a liability when the goods are delivered, but not until then. Some liability would be recognized if the contract became an onerous contact. This would happen if the fair value of the goods were to fall below $10 per case. A liability would be recognized for the amount of the loss because that amount has no economic value.
12. A provision for warranty work will be recorded in 20X3 because the company has