Energy Inc. case

1477 WordsDec 14, 20136 Pages
Scenario 1 Energy Inc. has a present obligation (IAS 37-17) and probable liability (ASC 450-20-25-2) on December 31, 2011 as a result of a past event, the contamination of the land, because it is virtually certain that a draft law requiring cleaning up will be enacted. It is probable (more likely than not) that Energy Inc. will be required to transfer economic benefits in settlement which is an outflow of resources embodying economic benefits in settlement (IAS 37-23). The amount of the obligation or loss can also be estimated reliably since Energy Inc. has made similar payments for cleanup in other countries, which is the best estimate of the costs of the clean (IAS 37-36/ASC 450-20-25-2). As a result, according to IAS 37-14, Energy…show more content…
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 referred to as losses. The Contingencies Topic uses the terms probable, reasonably possible, and remote to identify three areas within that range. ASC 450-20-25-2 An estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met: (a) Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss. (b) The amount of loss can be reasonably estimated. The purpose of those conditions is to require accrual of losses when they are reasonably estimable and relate to the current or a prior period. Paragraphs
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