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

820 WordsDec 27, 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…show more content…
An accrual is not made for a loss contingency because any of the conditions in paragraph 450-20-25-2 are not met., b. An exposure to loss exists in excess of the amount accrued pursuant to the provisions of paragraph 450-20-30-1.” Therefore, they also need to disclose the range of the possible loss with some explanation. 2. Even though the judgment required M to pay W $18.5 million on September 24, 2009, M filed a Notice of Appeal with the Court of Appeals in November 2009. Thus, the $18.5 million is not the fixed amount of loss to record yet. According to ASC 450-20-30-1, “ If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, that amount shall be accrued. When no amount within the range is a better estimate than any other amount, however, the minimum amount in the range shall be accrued. Even though the minimum amount in the range is not necessarily the amount of loss that will be ultimately determined, it is not likely that the ultimate loss will be less than the minimum amount.” Moreover, ASC 250-10-45-17 presents that “A change in accounting estimate shall be accounted for in the period of change if the change affects that period only or in the period of change and future periods if the change affects both. A change in accounting estimate shall not be accounted for by restating or retrospectively adjusting amounts

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